Merger for Synergies with Dell Computers
Introduction and Purpose of this Paper
Though Dell is one of the largest computer companies in the world, the recent past has been very tough for the company which can be seen in its stagnant revenues, declining margins and subpar performance compared with industry peers such as Apple and HP. There are multiple reasons for this performance such as Dell operating at the standards based commodity end of the business, with limited presence in the margin rich high end products, and it not being able to scale up to the creativity and innovativeness of companies such as Apple which have completely changed the dynamics of the ...view middle of the document...
For this, Dell would have to compliment its dominant position in the commodity business, along with superior capabilities gained in the server and storage space, which would help it to effectively offer end-to-end solutions to its customers. As of now, though Dell offers products and services in such high end segments, companies like HP and IBM dominate this space, and Dell often is not able to compete due to its weaker capabilities against very strong and established competition. To address this issue, and so that Dell can gain capabilities, expertise and reach across high end products and services, and turbo charge its presence in this area, it is suggested that Dell look at EMC Corporation as an merger or preferably acquisition target. EMC Corporation is a Fortune 500 and S&P 500 company that develops, delivers and supports information infrastructure and virtual infrastructure hardware, software, and services (“EMC at a Glance,” 2011).
EMC has got established presence, very strong brand and a lot of existing customers across product categories such as Storage, Virtualization, Information Security, Backup, Recovery and Archiving, Data warehousing and Business intelligence, Enterprise content management and Information governance, IT management, Cloud computing and services. In terms of financial numbers, EMC has annual revenues of around $20 billion with extremely high profitably, and would therefore be a perfect ally Dell’s $60 billion revenues and low profitability (Farmer, 2011). Each of these areas are very high value and margin rich areas, which would perfectly compliment Dell’s existing product portfolio, and give it capabilities for becoming the best end to end and lowest cost hardware player in the industry.
Ideal Mode of Financing this Takeover
Given that this would be a multi billion mergers or acquisition, it would be a very huge multiyear and strategic commitment for Dell to finance this acquisition. In my opinion, the ideal mode for financing this takeover would be to pay some part of the deal from Dell’s retained earnings and by raining debt from the market, and the remaining part by exchange of Dell stock. Dell currently has a debt ratio of about 79% and it could take on some more debt to finance this acquisition (“DELL INC Ratios and Returns,” 2010). The reason why Dell stock is not a preferred mode for financing this deal is because Dell’s stock has been underperforming the market since the past five years and can said to be very undervalued right now, and it would be paying a huge amount of its shares should it use equity or stock to finance this deal. In addition to raising loans, Dell could also look at floating bonds that could be used for financing this acquisition.
Second and Third Choice for Merger with Dell Computers
Given that Dell has entered into the consumer electronics market and also into the mobile market, but has not been able to leverage its brand due to its limited capabilities, it is much behind...