EMC-Dell Merger Receives Advisory Firms' Endorsement

The mammoth EMC Corporation (NYSE:EMC) –Dell deal has received endorsement from three high profile proxy advisory firms, Glass Lewis, Egan-Jones and Institutional Shareholder Services, (ISS) ahead of EMC’s special shareholders meet on Jul 19, 2016. The special meeting has been convened to allow shareholders to take the call on the EMC-Dell merger.

In October last year, Dell along with others, had announced to take over EMC in a record $67 billion cash and stock deal. Speculations about a merger between Dell and EMC Corp. had first surfaced in Sep 2014.

Coming to the terms of the deal, EMC shareholders will receive $24.05 per share in cash along with tracking stock related to a portion of EMC’s economic interest in VMware, Inc. (NYSE:VMW) . Based on EMC’s estimated outstanding shares at the close of transaction, stockholders will get 0.111 shares of new tracking stock for each EMC Corp. share. The deal values each share of EMC at nearly $33.15.

EMC’s CEO Joe Tucci has constantly stressed that the coming together of these two companies will be in the best interest of all stakeholders.

If we look closely at Dell’s financial position (it had to disclose the details last year), we can clearly see that most of its businesses (except Enterprise) have been going downhill for a while. Further, Dell, at present, has high stakes in the declining PC market.

EMC seems a good bet because EMC already has a strong product base and it is also advancing well in the cloud computing and Big Data domain. Also, its rapid expansion in all flash arrays (AFAs) is a big positive. Furthermore, this acquisition will allow Dell to have significant control over EMC’s most prized division- VMware.

This deal seems to be a positive for EMC as well considering that its core data storage business has been struggling for a while due to growing competition from flash storage peers such as Nimble Storage, Inc. (NYSE:NMBL) , SanDisk Corp and Western Digital Corp (NASDAQ:WDC) .

While there is hope for a better growth trajectory for the combined entity, the risks involved in integrating the two large companies is huge and that too with a massive debt burden.

At present, EMC is a Zacks Rank #3 (Hold) stock.