September 22, 2014
EMC Stock Soars After Investors Learn About Mega-Merger Talks With HP, Others
HP HP CEO Meg Whitman
For nearly a year, EMC and HP have been kicking the tires on a merger that would have created one the biggest enterprise tech companies on the planet — with over $130 billion in annual sales, according to the Wall Street Journal.
For comparison, IBM is expected to do $98 billion in annual sales this year.
Apparently, the talks have stalled because they couldn’t agree to terms. Both companies were concerned they couldn’t sell the deal as it was to shareholders, reports the WSJ.
But they had a lot of details ironed out including who would be the boss — HP CEO Meg Whitman — and which executives would run which units.
Another source close to the company told Barron’s Tiernan Ray that the deal isn’t completely dead:
“Meg was going to run the company, Joe’s guys were going to have significant roles, it had been worked out who would run the divisions, they’d done all this work on it,” says the source, referring to HP’s CEO, Meg Whitman, and EMC’s CEO, Joe Tucci. “They were very close last week, and then things went on pause,” says the source. “Things feel imminent-ish.”
This is surprising news for all sorts of reasons.
HP is only now digging itself out of a hole from its decades-long acquisition binge that left it heavily in debt, laying off up to 50,000 employees. Whitman even admitted it paid too much for at least one mega-deal (the $11 billion it paid for Autonomy).
HP’s track-record on mega-mergers is iffy at best. The deal, however, would have been an all-stock transaction, billed as merger between equals, not as an acquisition by HP, according to the WSJ.
Still, Whitman indicated in February that HP was not going to be making another mega-deal anytime soon, but would be doing “small to medium-sized acquisitions.”
Just last month, when talks with EMC would have certainly been going on, Whitman told analysts in the quarterly conference call that HP’s acquisition strategy would be “focused on only things that we cannot do organically, and given the choice, I would rather invest organically this is the heritage of Hewlett-Packard.”
The WSJ said EMC was talking to Dell about a merger, which may have involved just selling parts of itself off. Dell is working hard to get a piece of EMC’s enterprise storage business.
This means that EMC is open to talks with others, too, with names like Oracle and Cisco being dropped to the WSJ and Barron’s.
Cisco would be interesting match with EMC.
The two companies are close partners, but in recent years, EMC subsidiary VMware has been threatening Cisco with a new technology called “software-defined networking.” SDN threatens Cisco’s Cisco’s $21 billion router/switch business with a new software-centric way to build networks. Everyone from Goldman Sachs to Facebook has jumped aboard the SDN bandwagon.
Then again, HP, Cisco’s main rival in the network industry, has been all-in on SDN. Owning EMC/VMware would be sweet for HP on that count.
All this merger talk might amount to nothing, but EMC is at a crossroads.
EMC’s bread-and-butter technology, enterprise computer storage, is under attack from a whole slew of young new technologies that offer bigger, faster, and cheaper storage options — and from cloud computing.
Its longtime CEO Joe Tucci, who has already put off retirement once, is said to be possibly stepping down early next year, but has yet to announce a successor.
Meanwhile the company has been the target of activist investor, Paul Singer and his Elliott Management Corp. Elliott bought 2% stake in EMC, the WSJ reports, and has been pressuring Tucci to break the company up, sell itself off, or otherwise take radical steps to beef up EMC’s stock price.
EMC’s stock has languished at under $30/share for more than 5 years, far off the the nearly $100/share it commanded in 2000, the heady Internet bubble days.
This merger talk has driven shares up to a 52-week record high on Monday of $30.16.
HP’s shareholders are less ebullient. Its share price is down a little on Monday.
We reached out to EMC for comment and will update when we hear back.
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