EMC will have to wait two years before it can sell Data General's Aviion server business, but the vendor does not expect to spin off the server division as a separate unit.
The high-end storage vendor announced last week that it would acquire DG, its Clariion midrange storage business and the Aviion server family, on a pooling of interests basis and would issue 0.3262 shares of common stock for every DG share.
The DG shares were valued at $19.58 each, which means EMC will pay a total of $1.1bn for the company - considerably less than the two-times revenue figure often paid for such acquisitions. DG achieved sales of more than $1.5bn in 1998 compared with EMC's $3.97bn.
Mike Rutger, president and chief executive of EMC, said: "We'd have to wait two years before we could sell the server business because it's a pooling of interests transaction, but no, we don't expect to spin it off eventually. Aviion will continue to operate independently and we'll continue to treat it like any other server company, but the focus for EMC is the storage side."
But John McArthur, programme director of storage research at IDC, said: "EMC has two options - either to shut Aviion down or continue to support it. EMC is running Aviion as a separate unit for the time being so that it's flexible and will be able to be sold."
He added: "It's hard to imagine EMC would keep hold of Aviion because it'll cause a bit of conflict for a couple of years in terms of hardware independence and, in the long term, I don't think it will want to be in the server business, which is lower margin than storage."
But Rutger said the Clariion purchase would enable EMC to move into the midrange or $25,000 storage product sector after focusing traditionally on the high-end market for products costing $50,000 or more. The Clariion brand name will also be retained because it is a recognisable one.
Rutger claimed that the acquisition was not a defensive move to eliminate a rival from the market, but an offensive one that would increase the firm's target market by 40 per cent to $50bn by 2001.
But Rutger said he did not expect to see significant layoffs as a result of the move. "There will be some mismatches of talent and the DG population is older, so some may retire, but you won't see significant downsizing.
"EMC has 1500 openings, mostly in Massachussetts, so we're still on a path for growth."
Ron Skates, president and chief executive of Data General, will stay with the company to oversee its transition to EMC.
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