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From the Wall Street Journal

Dell and Silver Lake to take EMC private in biggest pure-tech takeover ever; VMware to remain public

Dell Inc. and private-equity firm Silver Lake will buy data-storage company EMC Corp. for roughly $67 billion in cash and stock, marking the biggest technology-industry takeover ever.

The $33.15-a-share price tag represents a 28% premium over EMC’s closing price before The Wall Street Journal reported last week that the companies were in talks to merge.

Dell said it expects to fund the deal through a combination of new common equity from Chief Executive Michael Dell, Silver Lake and others, the issuance of tracking stock, new debt financing and cash on hand. There are no financing conditions for the closing of the deal, Dell said. Dell recently reported that it had about $12 billion of debt.

Dell said the combined company “will focus on rapidly de-levering” in the first 18 to 24 months after the deal closes, which it expects to happen between May and October of 2016.

Chip maker Avago Technologies Ltd.’s pending $37 billion agreement to buy Broadcom Corp. is the next-biggest pure-tech takeover ever struck.

EMC shares rose 1% to $28.13 in midday trading.

Joe Tucci, EMC’s long-time Chief Executive, will be chairman and CEO of EMC until the transaction closes. Upon completion, Mr. Dell will lead the combined company as chairman and CEO. Mr. Tucci, 68 years old, has considered giving up his CEO spot for several years and had previously said he and fellow directors might settle the succession question by February 2015.

“This is a bittersweet announcement for me,” Mr. Tucci wrote in a blog post Monday. “We are entering a new era where the entire information technology industry is experiencing massive disruption,” he said. “EMC’s board and I have worked tirelessly over the last few years exploring a variety of options for EMC, and I truly believe this is the best way forward for us.”

The combined company will have about $80 billion in revenue and it will be “far more efficient and effective to operate as a private company,” with the ability to “incubate” and more freedom to invest for the long term, Mr. Tucci wrote.

VMware, a provider of cloud infrastructure in which EMC owns about an 80% stake, will remain a publicly traded company. EMC holders will receive $24.05 a share in cash in addition to tracking stock linked to a portion of EMC’s interest in the VMware business. VMware has a market value of about $33 billion. Dell said EMC shareholders are expected to receive about 0.111 shares of new tracking stock for each EMC share. Shares of VMware dropped 10% in midday trading and have slid 14% so far this year, including Monday’s decline.

The value of the tracking stock may vary from the market price of VMware given the different characteristics and rights of the two stocks, Dell said.

Some have speculated that Dell could sell part of the VMware stake it is acquiring, possibly to help fund the massive deal. According to a spokesman Monday, “should the transaction close, we would want to keep the current structure intact.”

EMC, which helps IT departments store, manage and protect information, said late last year that it was exploring strategic options. The company has been under pressure to boost its stock price since last year, when activist hedge fund Elliott Management Corp. took a roughly 2% stake in the company and urged it to spin off VMware, which has a market value of $34 billion. An arrangement struck in January between Elliott and EMC that had barred the fund from publicly pressuring EMC expired last month.

In a statement Monday, Jesse Cohn, Senior Portfolio Manager at Elliott, said Elliott “strongly supports” the deal.

“This is a landmark deal that will have wide-reaching ramifications across the tech landscape for years to come,” said Daniel Ives, analyst at FBR & Co, in a note to clients.

On a call with investors and analysts, Mr. Dell said the combination “makes great sense” because of the ways the businesses complement each other. EMC has best-in-class products for the largest customers, Mr. Dell said, and combining resources will allow Dell to access those markets. Dell has a stronger hold on small and medium-sized markets.

In response to questions over Dell’s debt load, executives on the call stressed healthy cash flows, recent credit-rating upgrades and growing market share. Dell’s Chief Financial Officer Tom Sweet noted that banks are committed and markets are open.

On the call, Messrs. Dell and Tucci didn’t rule out job cuts. But anything that were to happen on that front wouldn’t be on account of the merger, Mr. Tucci said.

The tie-up comes about two years after Dell went private in a roughly $25 billion buyout by its founder, Mr. Dell, and Silver Lake. Dell has since pivoted from personal computers, pinched by demand for tablets and smartphones, toward more-profitable areas like storage and security. The EMC acquisition helps cement Dell’s transition from a consumer-facing company to one focused on technology for large companies, and it gives it the breadth to compete more effectively with larger companies such as International Business Machines Corp., Hewlett-Packard Co., Cisco Systems Inc. and Oracle Corp.

EMC had earlier been in talks with Dell, The Wall Street Journal reported last September. The Hopkinton, Mass., company also had been in discussions about a merger with Hewlett-Packard Co., which ended before H-P announced plans to split itself in two in October 2014.