Update: We now know Dell will pay $67bn for EMC, this includes its 80% interest in VMware which will be a separte publically traded company.

There is an analyst call today

Earlier comment:

Few people know the intentions behind Michael Dell’s $50bn plus takeover of EMC.

Every merger is followed by rationalisation of assets, cuttnig of overlapping roles and product lines.

But the real business story is in what direction Dell decides to take the company.

Dell is privately held so not bound to capital market vicissitudes. But it has shareholders and reports says it is about to take on $40bn of debt.

As a contact told me, ‘if you think investors know what’s happening in your business you have not experienced the debt markets, those guys go deep and know what you will do before you know it yourself.’

The market speculators are having a field day as everyone focuses on the immediate shareholder winners and losers in the fallout of the deal and short term market reaction.

A buyout leveraged on $40bn of borrowing by a privately held corporation could have practically any number of outcomes.

Looking at a macro to put it simply, Dell is server hardware, EMC is storage hardware.

Scenario 1:
EMC is acquired by privately held Dell. This leveraged buy-out is then in part reconciled through the sale or share giveaway of VMware(which leads in virtualisation, the foundation of the cloud), RSA (cyber security, IT’s fastest growing market, Virtustream (Cloud services platform acquired for $1.2bn in July this year) and maybe even Pivotal (Big data apps and analytics development .)
Dell then integrates EMC’s storage technology with its server business and sells the stack.

It goes head to head with IBM, Hp, Cisco, Oracle. Companies which are struggling to maintain hardware sales to large enterprises in the face of public, hybrid and private cloud provider competition.

Scenario 2:
EMC is acquired by Dell. It splits into two separate companies (Just as hp is doing). One is a hardware company.

The other is a software and services business which sells enterprise cloud platform infrastructure as listed above. It sells to enterprises and public, hybrid and private cloud providers.