This morning’s most interesting story is the report that EMC is exploring a possible merger with Dell. EMC currently has a market cap of about $50 billion, while Dell was taken private by Silver Lake in 2013 in a deal then valued at $25 billion.
I have written here recently about the challenge of managing disparate businesses under one company, which is leading to the break up of HP and Alcoa. And I have written about activist investors forcing companies to forsake long-term interests in pursuit of short-term profits. A Dell-EMC merger would write an interesting new chapter in both stories.
EMC currently operates as a kind of federation – five quasi-independent companies. Hedge fund Elliott Management has been pushing for a break up, in order to make it easier for the marketplace to value the pieces separately. By merging with Dell and leaving the public markets, that threat goes away.
Moreover, Silver Lake’s Egon Durban expressed admiration for EMC’s “federation” model when he spoke at Fortune’s Brainstorm Tech conference in Aspen this summer, and suggested Dell might follow suit — allowing its cyber security and cloud integration businesses, for instance, to operate separately from its hardware business.
The merger of Dell and EMC could create an entirely new corporate model — a broad tech “platform” company operating in multiple businesses, but free from activist investors and the quarterly earnings pressures of public markets.
The challenge private equity firms have, of course, is that investors eventually want their money, forcing an “exit” back into the public markets or a sale to another buyer. But Durban made clear this summer that Silver Lake is in no rush to exit Dell. “There are many examples of us owning businesses for over a decade,” he said.
You can see Durban’s full interview with Adam Lashinsky here – it is fascinating to watch in light of today’s news.
In the interview, by the way, Durban points out that the Dell deal originated with a conversation backstage at Fortune Brainstorm Tech three years earlier. The EMC talks may well have been hatched with Durban’s admiring comments in Aspen this year. We are happy to provide the venue for such interesting conversations.
More news below.
• Deutsche Bank warns of charges
German-based Deutsche Bank warned it would record a series of charges that would result in a third-quarter loss of almost $7 billion. The bank also warned it could reduce or eliminate its dividend for the rest of the year. A massive impairment is tied to higher regulatory capital requirements, while another $1.3 billion is for litigation expenses. USA Today
• UAW strike averted
A strike at Fiat Chrysler Automobiles has been averted thanks to a revised deal that was reached between the auto company and the United Auto Workers union. While the UAW didn't offer details about the proposed deal, union President Dennis Williams said the UAW "made real gains and I look forward to a full discussion of the terms with our members." WSJ (subscription required)
• Monsanto to cut 12% of workforce
Agricultural giant Monsanto said it would eliminate 2,600 jobs as part of a cost-savings plan as it also warned profit would remain weak through 2016. The company is the latest major firm forced to confront tough profitability challenges due to a decline in world commodities prices. Monsanto's shares have dropped 26% this year, and on Wednesday, the company said it would accelerate a $3 billion share repurchase program that had previously been suspended during a failed bid for Syngenta AG. Bloomberg
Around the Water Cooler
• NYT wants to double digital sales
The New York Times has announced it intends to double digital-only revenue to $800 million in five years, a proclamation that comes just a few days after the media company said it had achieved 1 million digital subscribers. To get to that revenue figure, the Times said it must more than double the number of engaged digital readers. Fortune
• Can SABMiller get more from InBev?
Anheuser-Busch InBev has tried three times to make a bid for SABMiller, and each time SABMiller has said no. The British brewer is essentially holding out for more money, but analysts see only a few more bucks (or pounds in this case) added to any sweetened offer. One analyst sees a 60%-70% probability a SABMiller-InBev deal gets done, even though divestitures would be needed in the U.S. and China for regulators to sign off on the massive, $104 billion – or potentially more – transaction. Fortune
• Ex-Twitter CEO writes for HBO
Twitter has generated a lot of headlines in recent weeks, as the social media company's prolonged period without a CEO raised eyebrows (eventually, co-founder Jack Dorsey was again handed the reins). But in a more low key development, Dick Costolo – who was Twitter's CEO for almost five years before stepping down this summer – has said he's currently helping write the third season of HBO's show Silicon Valley.