Selling Former Perot Systems Means $3B in Cash For Dell’s EMC Buyout
Austin—Dell is now at least a few billion dollars closer to its $67 billion buyout of Hopkinton, MA-based EMC.
The Round Rock, TX-based computing giant is selling its IT services business for more than $3 billion to NTT Data Corp., a publicly traded company that was spun out from Japanese telecom Nippon Telegraph and Telephone in 1988, according to the companies. Dell Services provides infrastructure, cloud, and application services, among other IT help, to enterprise customers in fields such as healthcare, life sciences, banking, insurance, and other financial services businesses.
Dell confirmed to Xconomy Monday that the cash it gains from the sale will help fund the purchase of EMC, a multi-billion dollar acquisition that was announced in October. The deal provides a little insight into exactly how (and if) Dell will actually come up with the tens of billions of dollars to finance the deal, which has received mixed reactions from local entrepreneurs.
In December, the company said in a regulatory filing that “we planned to consider and execute some divestitures, in part to help finance the acquisition of EMC. We won’t speculate about any other activities,” Dell Spokesman David Frink wrote Monday in an e-mail.
Dell hit a snag in February in the financial markets, according to Reuters and The New York Post. Both publications reported that banks working to syndicate part of the $49.5 billion in debt being used to fund the buyout were days, if not weeks, behind schedule. But later in the month, Dell’s Chief Integration Officer Rory Read denied that there were “headwinds” with the financing in a letter to shareholders.
In addition to using as much as $49.5 billion in bank loans and corporate bonds to help pay for the EMC purchase, the company said when it announced the deal in October that the funding would come in part from Dell’s private owners—which includes founder Michael Dell and private equity firm Silver Lake Partners, which took the company private in 2013. The owners agreed to provide equity financing of as much as $4.25 billion. Both Dell and EMC also planned to use cash on hand ($2.95 billion and $4.75 billion, respectively). The deal includes interest in a tracking stock linked to VMware, the publicly traded company of which EMC owns 80 percent.
Dell has jumped some non-financial hurdles recently, too, having received FTC and European Union approval of the acquisition in February. It now awaits a nod from shareholders for a meeting it expects to host later this spring.
NTT’s interest in Dell Services is based in a desire to expand its consulting and IT outsourcing services globally, particularly in the U.S. Dell created the services group from Perot Systems, a Plano, TX-based IT services company founded by billionaire and former presidential candidate Ross Perot that Dell acquired for $3.9 billion in 2009.