Whatever happens, EMC owes Dell $2.5 billion

Written by on October 14, 2015 in News with 0 Comments
The EMC logo is seen at the entrance to the company's office in Santa Clara, California, in an undated photo provided by EMC. REUTERS/EMC/Handout via Reuters

The EMC logo is seen at the entrance to the company’s office in Santa Clara, California, in an undated photo provided by EMC. REUTERS/EMC/Handout via Reuters

(Reuters) – EMC Corp said it would pay Dell Inc up to $2.5 billion in termination fees if the data-storage company accepts a “superior proposal”.

The company will have to pay about $2 billion before the expiry of the 60-day ‘go-shop’ period, during which it can solicit other bids, and $2.5 billion after the expiry on Dec. 12.

EMC said Dell had secured financing of up to $49.5 billion from banks to fund the roughly $67 billion deal announced on Monday.

While IBM Corp, Cisco Systems Inc, Oracle Corp and Hewlett-Packard Co could be potential suitors for the company, the chances of them challenging Dell with a rival offer are slim, people familiar with the matter told Reuters on Monday.

Dell’s offer is structured in a way that will also give EMC shareholders a special stock that tracks the share price in cloud-based virtualization software maker VMware Inc, which is majority-owned by EMC.

Upon closure of the deal, EMC shareholders will own about 53 percent of VMware, Dell and its investors will have a 28 percent stake and existing shareholders will hold the rest.

VMware will remain a publicly traded company.

Analysts have said that Dell’s plan to create a VMware tracking stock will likely hit the virtualization software company’s price as the size of the float increases.

EMC will also pay an additional $2.5 billion if it enters into a deal with another company within 12 months of terminating the deal with Dell.

Dell – which has secured financing from banks including Credit Suisse, J.P. Morgan and Barclays – may have to pay EMC a termination fee of up to $6 billion, the company said in a regulatory filing.

Dell, through a holding company called Denali Holding Inc, has also obtained up to $4.25 billion from Michael Dell and partners, including private equity firm Silver Lake, EMC said.

EMC shares were down 1.3 percent at $27.97 in morning trading on the New York Stock Exchange, while VMware shares were down 3.6 percent at $69.66.

By Devika Krishna Kumar

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