Dell and private equity firm Silver Lake announced today (Monday) they are buying EMC Corp. (NYSE: EMC) for $33.15 a share, or $67 billion.
Now investors are asking us, "Should I buy EMC stock?"
The deal will pay EMC shareholders $24.05 a share in cash, plus $9.10 of a tracking stock tied to EMC's VMware Inc. (NYSE: VWM) stake. EMC bought VMware in 2004 for $625 million. When the global software solutions company went public in 2007, EMC retained an 80% stake.
The Dell-EMC transaction is the largest tech deal in history. It will help Dell reinvent itself, and it also throws EMC a lifeline.
Dell was taken private in 2013 by founder and CEO Michael Dell and Silver Lake in a $25 billion buyout as the PC market was slowing. An EMC acquisition will help Dell diversify away from just PCs. It will also give Dell more scale in the faster-growing and more lucrative market for managing, securing, and storing data enterprises.
The Dell-EMC acquisition also fits EMC's recent plans.
Publicly traded since 1986, EMC has been mulling strategic options for more than a year to help boost its stagnant share price. Activist investor Elliott Management Corp. got involved and has been pushing EMC to sell itself or spin off its VMware position.
While the deal is major news, both EMC stock and VMware stock were little moved Monday. And that has left many investors to wonder, "Should I buy EMC stock now?"
Should I Buy EMC Stock Now?
Because of a "go-shop" provision in the Dell-EMC merger agreement, there is speculation that another bidder could emerge.
The provision allows EMC to solicit bids for 60 days from other parties and pay Dell a discounted breakup fee if EMC inks a deal with another company.
Potential suiters include International Business Machines Corp. (NYSE: IBM), Cisco Systems Inc. (Nasdaq: CSCO), and Hewlett-Packard Co. (NYSE: HPQ). Still, people familiar with the matter told Reuters the chances of them challenging Dell with a competing offer is slim.
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For investors looking to make a hefty profit from EMC stock, Money Morning Defense & Tech Specialist Michael A. Robinson says the time has passed.
"It's probably too late to get in now on speculation of a buyout," Robinson said Friday. "I don't chase stocks like that, especially in a market as volatile as this."
"I would caution anyone against buying into buyouts, especially when the news has been out for several days," Robinson continued. "I would avoid it unless you are an experienced, aggressive trader and you really know what you're dealing with. Any new rumor could send the stock in any direction. This is not a great strategy for long-term investors."
EMC shares slipped more than 1% to $27.32 Monday morning. VMW shares, meanwhile, sank more than 10% to $70.25.
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Related Articles:
- The Wall Street Journal: Dell to Buy EMC for $67 Billion
- Bloomberg: Dell to Buy EMC in Deal Worth About $67 Billion
- Reuters: Dell to Acquire EMC in $67 Billion Record Tech Deal