EMC is doing more than looking to sell off its share in VMware; it's reportedly looking for a "merger of equals" with complementary companies, including Dell and HP. If such a deal comes to fruition, it will reshape the technology landscape and cause tremendous disruptions in the channel.
EMC is under pressure by activist investor Elliott Management to return more value to shareholders. Initially, this pressure resulted in EMC reportedly shopping its 80 per cent stake in VMware to other companies, including HP.
Over the past few days, details have emerged that EMC, which has an estimated value of $60bn, has explored the potential of merging with similar-sized and complementary companies, such as HP and Dell. The intent would be to create a behemoth vendor with greater technology capabilities than the sum of any two parties' respective parts.
According to published reports, any merger likely would be an all-stock trade, in which the shareholders of the respective sides would receive corresponding shares of the two companies equal to the deal's valuation. While no one involved in the negotiations has commented on the potential value, reports say talks between HP and EMC broke down because of a failure to reach an acceptable price.
None of the companies involved, including HP and EMC, which have reportedly held the most extensive talks, are commenting officially.
Dell CEO Michael Dell is saying that his company, which went private in the past year in a massive $25.5bn leverage buyout, is open to a storage acquisition. The buzz within Dell is that the company is expecting a big storage acquisition, but no one knows specifics.
Other companies noted as potential EMC merger partners are Oracle and Cisco. Cisco CEO John Chambers says there's no interest in a merger, even though Cisco and EMC have partnered on virtual datacentres for the past five years.
The situation with HP, which is still recovering from its botched 2011 Autonomy acquisition for $11bn, is fluid. Some reports indicate HP is still engaged in negotiations with EMC. Other reports indicate that EMC and HP have ceased talks and are unlikely to resume.
A combination of HP and EMC would create a technology powerhouse that generates more than $130bn a year and holds a market valuation of nearly $100bn. HP is the largest server vendor in the world and the second-largest network gear vendor. While it has significant storage assets, it lags behind rivals EMC, NetApp, and Dell. A merger would create a massive infrastructure company, bolstered by VMware's market-leading virtualisation portfolio.
In addition to the storage assets, HP could gain significant security assets, as EMC owns RSA Security, which is a leader in encryption, authentication, and identity management solutions. Those technologies would complement HP's existing firewall, intrusion prevention, and security information management tools.
A merger between EMC and Dell would create a new storage powerhouse, combining Dell's EqualLogic and Compellent assets with EMC's deep storage portfolio. Additionally, Dell is a leader in servers, which would complement EMC's storage offerings. And Dell has significant storage assets that would be aided by the addition of RSA.
If such a deal comes to pass, it will rewrite the technology market and cause significant portfolio and channel disruptions. Merging two large companies will take a long time and tremendous resources. Mergers are almost always paid for through economy of scale by consolidating back-office resources. Additionally, these deals will almost certainly result in the consolidation of products, since the new company would need to eliminate in-house competition.
Consolidations of products, operations, and channel programmes will cause significant disruptions in the channel. Some acquisitions take two or more years to translate into channel consolidation. The channel is replete with examples of how the channel consolidation process alienates partners, causes sales attrition because of a customer base that doesn't want to follow the merger, and results in lost products and incentives.
Given the nature of the merger reports, it's too early to tell if the chatter will materialise into a merger. But the potential of an EMC merger with a rival speaks volumes about the shifting market dynamics and the need to consolidate technologies, costs, supply chains, and channels.
If EMC does merge with a similar-sized company, it could trigger a wave of mega-mergers in the technology industry, which will ripple through the channel.
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View photos of last night's awards ceremony in London
View photos of all the winners from the 2018 Channel Awards
After a glittering awards evening in Battersea celebrating 25 years of the Awards, we are pleased to share the list of winners and judges' commended winners