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Mega tech merger would create new model

EMC CEO Joseph Tucci and Dell CEO Michael Dell.EMC CEO Joseph Tucci and Dell CEO Michael Dell.
EMC CEO Joseph Tucci and Dell CEO Michael Dell.Photographs by Getty Images

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 (HPQ) and Alcoa (AA). 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 (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.

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