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Dell Mulling Divestment Options To Finance EMC Buy

Dell on Monday revealed it was still assessing possible strategies to finance its planned $67 billion acquisition of EMC and its controlling interest in VMware.

In its first public financial report since becoming a privately held company in 2013, Dell revealed that it may need to divest or spin off some of its assets in order to adequately finance the deal -- the largest ever in the IT industry -- and pass investor muster. In addition, Dell said it may buy back up to $3 billion of VMware's tracking stock.

Dell issued its financials and other materials related to the deal in a filing with the Securities & Exchange Commission (SEC) on Monday through a new, privately held entity called Denali Holding Inc. The Denali S-4 filing comes just after the end of a 60-day go-shop period granted to EMC, which would have permitted it to accept a better offer if one emerged. The odds were against anyone outbidding Dell's bid, however, and the clock on the go-shop period expired late last week.

While EMC shares have remained relatively flat since the acquisition was announced on Oct. 12, VMware shares are down sharply.

Among the assets Dell could sell or spin off are its services business, RSA Security, SonicWall and the Dell Software Group business it inherited from its 2012 acquisition of Quest Software. Boomi, which provides connectivity middleware between public cloud services and legacy systems, is also a possible spin-off candidate, Dell acknowledged in the filing.

Dell didn't identify any specific business it will sell or divest, but the wording suggested it will need to liquidate some of its assets.

"Denali expects that it may divest certain businesses [sic] lines, assets, equity interests or properties of Denali and EMC to be determined, the proceeds of which may be used to, among other purposes, repay indebtedness incurred in connection with the merger," according to the filing. "Such divestitures may be material to each company's financial condition and results of operations. As of the date of this proxy statement/prospectus, there is no commitment or probable transaction related to these potential divestitures, and the manner in which any potential divestitures might be effected has not been determined."

One asset that Dell will leverage for cash is SecureWorks, the business unit that provides threat intelligence, incident response and managed security services. On Friday, Dell announced that it plans to issue a stock offering for SecureWorks. The company declined to say how many shares of Class A stock it will issue or how much it hopes to raise, only stating that those details will be determined at a future date.

Dell's revenues for the quarter-ended July 31 amounted to $14 billion, down 6% year-over-year. Revenues for the six-month period ending Aug. 1 were $27 billion, a 7% decline.

On a GAAP basis, net income of $265 million was down 49% for the quarter. Net profit for the six-month period was $769 million, reflecting a 25% drop.

Revenue for Dell Software Group for the six months ended July 31 was $680 million, a decline of 5% year-over-year.

About the Author

Jeffrey Schwartz is editor of Redmond magazine and also covers cloud computing for Virtualization Review's Cloud Report. In addition, he writes the Channeling the Cloud column for Redmond Channel Partner. Follow him on Twitter @JeffreySchwartz.