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Don’t count Oracle founder Larry Ellison among the critics of Dell’s controversial $67 billion deal to buy data storage giant EMC and its assorted federated companies.
Speaking with financial analysts last week about Oracle’s plans in such areas as cloud computing and software-as-a-service (SaaS), Ellison fielded a question about the proposed merger, which was announced in early October.
“I think it’s brilliant,” said Ellison, Oracle’s former CEO who now is the software vendor’s chairman and CTO. “My friend Jim Davidson and my friend Michael Dell have done a spectacular job in engineering that EMC deal. … They’re all going to make billions of dollars. Michael’s going to make billions of dollars personally. … It’s a fabulous, fabulous deal.”
Davidson is a managing partner at Silver Lake Partners, an equity firm that two years ago helped Michael Dell take his namesake company private in a $25 billion buyout.
EMC had been under pressure from activist investor Elliott Management for more than a year to make structural changes—including possibly spinning out VMware—to increase its value and return more money to shareholders. There had been reports over the past year or so that EMC executives had been in negotiations with other vendors, including Hewlett-Packard, though nothing had panned out. Some news sites in early October brought up Dell’s name as a possible suitor, and the deal was announced a week later.
The deal—the largest ever in the tech industry—was the focus of much of the discussion at the Dell World 2015 event a week after the announcement, with Michael Dell and others saying that buying EMC will help them accelerate Dell’s strategy to become a complete enterprise IT solutions and services provider, bolstering its capabilities in such areas as storage, virtualization and the cloud, giving it greater scale and giving it greater traction in major enterprises.
However, some analysts have questioned whether such a massive company can be nimble enough to compete in a rapidly changing market, and integrating such large product portfolios and workforces as well as different corporate cultures will be challenging. Officials with both companies expect the deal to close in the middle of 2016.
But Oracle’s Ellison said he expects the move to pay off big for Dell and Silver Lake. EMC deals in last-generation technology, which doesn’t make it as attractive in an industry that values the latest innovations, he said. However, EMC still makes a lot of money, has a huge install base and will be around for a long time.
That said, Oracle is not in the running for EMC, Ellison said during the Oct. 29 financial analyst meeting.
“We’re not bidding for EMC, but I shed more than a couple of tears” after hearing about Dell making the deal, he said. “If we bought EMC, we could make a lot of money.”
However, it would interfere with Oracle’s goal of becoming the world’s top SaaS and infrastructure-as-a-service (IaaS) vendor.
“The next two years are going to be critical to us achieving those goals and this would be a big distraction,” Ellison said.
Oracle’s Ellison: $67 Billion Dell-EMC Deal ‘is Brilliant’
What makes the Dell-EMC deal even more interesting is the contrast to HP’s decision to address the changes in the tech industry by splitting the company in two. As of Nov. 1, there are now two new companies in the market—Hewlett Packard Enterprise (HPE), which focuses on enterprise technologies like servers, networking and the cloud, and HP Inc., which sells PCs and printers. The next couple of years will be a proving ground of sorts to determine which strategy works best.
HPE CEO Meg Whitman, after the Dell-EMC deal was first announced, said in a memo to employees that the debt and integration issues Dell will face will distract the company for the next couple of years, opening up opportunities for her new company to siphon off customers. Whitman said that “integrating EMC and Dell, which combined have more than $75 billion in revenue and nearly 200,000 employees, is no small feat. This will be a massive undertaking and an enormous distraction for employees and their management team as two very different cultures come together, leadership teams shift and an entirely new strategy is developed.”
Michael Dell has argued that scale continues to be important for vendors, and that it is important for enterprise IT solutions and services providers to have all the pieces in one place, from PCs through the data center and cloud.
“We have a different viewpoint as to how our companies should evolve than HP does,” he said during a press conference at Dell World, adding that “scale is important. … When you look at the industry, companies that have succeeded in the … data center space were attached to large PC businesses, client businesses, and volume actually matters.”