Dell-EMC cleared the final hurdle left in the merger last month, which allowed the acquisition to close by the expected date of September 7.  The Dell-EMC merger was approved by Chinese regulators and the Ministry of Commerce (MOFCOM) in late August, a month after EMC shareholders voted their approval.  ((EMC Shareholders Approve Merger With Dell, Wall Street Journal, July 2016)) EMC first announced the $67 billion acquisition in October last year, with Dell paying $24.05 per EMC share in cash, in addition to a special tracking stock introduced for EMC’s stake in VMware (NYSE:VMW). Going forward we will cease coverage of EMC.
Backdrop of the Merger
EMC had faced pressure from some of its large institutional investors since mid-2014 to spin off some of the fastest-growing businesses within the company such as VMware and Pivotal.  Prominent activist investor Elliott Management constantly pushed EMC’s management for structural changes to aid shareholders.  Subsequently, the Dell-EMC merger was announced in October of last year, with Elliott Management supporting the merger.
By the end of February, Dell and EMC announced that the both the U.S. Federal Trade Commission and European regulatory authorities approved of the merger and the waiting period for U.S. antitrust regulations regarding the proposed had expired.   The last remaining hurdle was the Chinese MOFCOM, which could have been opposed to the merger at the time due to the possible impact it might have on Huawei, the current market leader in the data storage space in China. 
Impact On Competitors
Acquiring EMC’s data storage and related businesses makes sense for Dell to help it compete directly with Hewlett-Packard Enterprise (NYSE:HPE) and IBM (NYSE:IBM). EMC is a clear leader in the storage systems market, commanding a nearly 30% market share in worldwide factory sales of external storage systems, which Dell can add to its 6-7% share in the market. Comparatively, IBM and HP hold 10-11% share in the external disk storage systems market. Moreover, Dell’s enterprise products can now offer integrated IT offerings to clients with EMC’s data storage, content management, data security and VMware’s cloud computing offerings under its belt.
According to Dell’s management, the net revenue that the combined entity generated last year was close to $74 billion, with a huge chunk of it coming from pure hardware including servers, storage systems and converged systems. Moreover, it is interesting to note that there will be minimal product overlap for the two combining entities given that Dell’s core competence in storage lies in storage systems for small and medium businesses (or products costing around $20,000). Comparatively, EMC’s storage systems cost significantly higher and cater to larger corporations.  This could be a worrying factor for competing firms in the storage space – particularly HPE and IBM. Moreover, it could lead to one of the IT giants to contemplate acquiring storage systems company NetApp (NASDAQ:NTAP) to remain competitive with Dell-EMC. NetApp has been the second largest vendor of external storage systems over the last few years.
The above table represents the market share by all storage vendors in the external storage systems market as specified by research firm IDC. In addition to the external storage systems, vendors including HPE, IBM and Dell also sell converged systems that include storage as a part of a complete package that includes servers and network boxes. In that market space, IBM and HPE currently have a more sizable presence than pure storage vendors such as EMC and NetApp. Post-merger Dell-EMC could make itself huge in this space and gain share from both IBM and HPE. Additionally, NetApp could have a tough time in the storage domain given that would now be the only storage vendor left to compete in a struggling hardware market, to compete with much larger companies with deep pockets.Notes:
- Dell Closes $60 Billion Merger with EMC, Wall street Journal, September 2016 [↩]
- China Grants Clearance for Dell-EMC Merger, Wall Street Journal, August 2016 [↩]
- At EMC, Marriage Requires Investment, Wall Street Journal, July 2014 [↩]
- Hedge fund Elliott pushes EMC to split off VMware: WSJ, Reuters, July 2014 [↩]
- Dell and EMC Receive U.S. Federal Trade Commission Clearance for Proposed Merger, EMC Press Release, February 2015 [↩]
- Exclusive: EU set to clear Dell’s $67 billion deal to buy EMC, Reuters, February 2016 [↩]
- What Dell’s Deal for EMC Means for China Tech, Wall Street Journal, October 2015 [↩]
- Michael Dell on closing EMC deal: ‘We can think in decades’, ZD Net, September 2016 [↩]