Dell in $67bn deal for EMC

UPDATED: EMC will continue looking round for something better until the deal closes

Dell has announced a $67bn deal to acquire storage vendor EMC - although EMC has insisted on a clause in the agreement that will enable it to seek alternative suitors while the deal goes through.

The deal was announced within the last hour, and comes after Reuters broke news of the taekover talks between the two companies late last week. Today, Reuters claimed that "EMC has asked for a 'go-shop' provision to be included in the merger agreement that will allow it to solicit bids from other parties and pay a discounted breakup fee to Dell if there is a deal with another company."

However, the number of other companies that would be able to beat Dell's offer would be very limited, especially with IBM and HP with their own challenges to deal with, while for Cisco Systems such a move would make little strategic sense.

Indeed, EMC could boast a market capitalisation of $53.6bn at the close of trading on Friday, although about two-thirds of that value is wrapped up in EMC's ownership of virtualisation software vendor VMware. Dell could part finance the deal by floating off VMware to recoup around $35bn.

EMC's activist shareholder Elliott Management has already been pushing for a spin-out of VMware, with EMC shareholders receiving shares in a newly independent VMware. Such a deal may appeal more to shareholders if Dell offers too modest a premium on EMC's share price.

Dell's $67bn offer price represents a comfortable 28 per cent premium above EMC's closing stock price on Friday, and ought to head-off any alternative offers, either from technology vendors or private equity firms.

According to Reuters, Dell is keen to pursue the deal in order to help diversify away from PCs and low-end servers, while also better serving corporate customers with higher-end hardware and services.

Dell went private in 2013 when founder Michael Dell put-up his own money, in partnership with private equity firm Silver Lake Partners. Dell's board insisted on a similar clause enabling it to "shop around" for alternative offers, turning up activist investor Carl Icahn and private equity firm Blackstone Group.