Dell Inc. is in advanced talks to buy EMC, people briefed on the matter said on Wednesday, potentially uniting two stalwarts of the technology industry as each faces pressure to revive its business prospects.
A deal would involve mostly cash, some of these people said. An agreement could be reached within a week, although these people also cautioned that talks were continuing and might still fall apart.
A takeover of EMC would answer years of questions about the fate of the 36-year-old company, which has grown from data storage into a collection of businesses, including network security and content management for corporate clients.
Critics have contended that EMC’s vaunted “federation” business model has produced little benefit for shareholders in recent years, with some investors calling for a breakup. Such demands have been largely rebuffed by EMC’s longtime chairman and chief executive, Joseph M. Tucci, who is 67.
EMC’s core storage business, meanwhile, has faced pressure from rivals, including the likes of Pure Storage, a six-year-old company that went public on Wednesday.
Much of EMC’s value, moreover, comes from its 80 percent ownership of VMware, which makes so-called virtualization software, used to make efficient modern computing systems. VMware is worth $34.3 billion, making EMC’s stake worth $27.4 billion. EMC also has 98 percent of the voting shares in VMware.
EMC had a total enterprise value of about $50.8 billion, according to data from Standard & Poor’s Capital IQ. Its stock price has fallen 12.7 percent so far this year.
EMC had previously held merger discussions with Hewlett-Packard, although those talks fell apart.
Since last year, EMC has faced pressure from Elliott Management, a $25 billion hedge fund known for shaking up companies it believes are underperforming.
In January, EMC reached a truce with the activist firm, appointing two new directors to its board. But while Elliott has waited patiently for sweeping moves by EMC, analysts have questioned whether the hedge fund would again publicly call for change.A standstill agreement between the hedge fund and the company expired last month.
Should Dell buy EMC, it would be a quiet end to one of the last great East Coast technology companies. Founded by Richard Egan and Roger Merino (the E and M of EMC), the company came of age in a heyday of computer companies outside of Boston.
Digital Equipment and Wang Computer were two of the most notable, but there were dozens more, centered around the mini and microcomputers that were popular in between mainframes and personal computers.
Most of these companies fell away with the rise of networked communications and the Internet. Mr. Tucci, who became chief executive in 2001, would stand at his office in Hopkinton, Mass., and point to where companies had once stood.
Data storage was initially a thriving business, as the Internet vastly increased the amount of digital information people used. Prices fell inexorably, however, with technology improvements, and Mr. Tucci attempted to add value to his products by buying a number of other companies, including document management and security firms.
His greatest acquisition, VMware for just $625 million, was almost accidental. Mr. Tucci thought the company’s product would enable him to sell more storage boxes by increasing data use. In fact, VMware’s so-called virtualization, which abstracts the functions of computer servers, enabled core elements of cloud computing.
While troubled by its own competitive pressures, VMware, located in Palo Alto, Calif., is considered the more dynamic company.
Mr. Tucci has in recent years talked about retiring, but had made no clear succession plans. If the Dell deal happens, he won’t have to.
Two years ago, Dell was taken private by its founder, Michael S. Dell, and the investment firm Silver Lake in a $24 billion leveraged buyout, one of the biggest since the financial crisis. The transaction was meant to shield Dell from the glare of public markets as it seeks to move away from personal computers into services for businesses.
Taking on EMC could prove financially tricky for Dell, which assumed a significant amount of debt in its leveraged buyout.
Dell has been stressing “converged systems,” which merge computing, storage and networking in one unit. EMC has significant assets in areas like data management and security that Dell could use to build up those offerings.
Dell, EMC, Silver Lake and Elliott declined to comment.News of the discussions was reported earlier by The Wall Street Journal.