Dell is a major HP competitor in the enterprise market; HP is approaching a split that will spin-off HP Enterprise as standalone company
Dell has agreed to buy EMC in what could be the biggest tech takeover in history. The size of the buyout will depend on the value of EMC’s interest in VMWare, but Dell and EMC estimate that the deal will be worth $67 billion. Dell, which went private two years ago in a $25 billion deal, will need to return to the debt markets to finance this deal.
Meanwhile, in another part of the country, Hewlett-Packard is approaching a bifurcation that will break the company into consumer and enterprise groups. As a backdrop to the split, HP recently announced plans to cut more than 25,000 jobs.
Now, with news of the Dell-EMC deal out, HP CEO Meg Whitman has sent an email to employees explaining how the Dell move is beneficial to HP. Whitman has a unique perspective as last year she worked on a potential HP acquisition of EMC, a provider of cloud computing and data storage solutions,
Business Insider got ahold of a copy of the email from Whitman, which carried the subject line, “Seize the moment.”
“You probably saw the news earlier today, Dell announced that they would acquire EMC for $67 billion,” the email notes. “I wanted to take a quick moment to tell you why I (and you should too) believe this is a good thing for Hewlett-Packard Enterprise and an opportunity for us to seize the moment. This is validation for the strategy that we have laid out and I am not surprised that others would try to emulate it. But, the reality is that we are two years ahead of the game and it will be difficult for others to catch up.
“First, let me give a little context. To pay back the interest on the $50 billion of debt that the new combined company will have on their balance sheet, Dell will need to pay roughly $2.5 billion a year in interest alone. That’s $2.5 billion that they will allocate away from R&D and other business critical activities, which will keep them from better serving their customers.
“Second, integrating EMC and Dell, which combined have more than $75 billion in revenue and nearly 200,000 employees, is no small feat. This will be a massive undertaking and an enormous distraction for employees and their management team as two very different cultures come together, leadership teams shift and an entirely new strategy is developed.
“Third, bringing two portfolios together will require a significant amount of product rationalization, which will be disruptive to their business and create confusion for their customers. Customers simply will not know if the products they are buying today from either company will be supported in 18 months.
“Fourth, this move is going to cause chaos in the channel as they bring together two different programs and approaches.
“All of this at the very moment when we have completed our journey to create two new, focused companies. We’re organized, we have a strong balance sheet and our innovation engine is humming. So, get out in front of your customers and your partners. Tell them our story. Take advantage of this moment.”
Dell Founder Michael Dell said the combined companies will be well positioned to serve enterprise customers in six key areas: digital transformation, software-defined data centers, converged infrastructure, hybrid cloud, mobile and security.
Roughly half of EMC’s market value is tied to its stake in VMWare, a Silicon Valley company that makes software designed to enable multiple operating systems and applications to share one physical server. VMWare will continue to operate as an independent, publicly traded company.
