EMC Wants to Sell Documentum to Reduce Dell's Debt Burden
EMC Corp. wants to shed its content management business, Documentum, which was bought for $1.7 billion in 2003. The divestiture will help finance the company’s biggest ever technology takeover by Dell, divesting $67 billion in assets.
Dell recently made a deal to sell its IT services unit, formerly Perot Systems business, to NTT Data for $3.05B, and is said to be looking to sell software to Quest (systems management software) and SonicWALL (security hardware/software) for a combined $4B. Dell acquired SonicWALL for about $1.2 billion in 2012, while Quest was acquired for $2.36 billion in the same year.
Yesterday, Alan Pelz-Sharpe, Vice President & Managing Director VOCalis with Digital Clarity Group and previous guest on The CMS-Conencted Show, spoke with us about the story behind the divestiture, Documentum and the potential buyers:
“Documentum has never been a good fit within EMC anyways. EMC is a strong hardware company, while Documentum is a software firm and they are sold differently. Especially, when one hardware company, EMC merges with another hardware company, Dell, to keep Documentum, just doesn't make sense,” Alan told CMS-Connected. “Documentum is still a very valuable firm, so EMC could make a good money out of selling it.”
He also predicted on who would be interested in buying Documentum:
“It most likely would be bought by a private equity firm, but, depending on the price, there are other potential buyers out there. For instance, IBM could potentially look at it as a consolidation buy.”
During the call, Pelz-Sharpe also expressed his disagreement with many people who claim that Documentum is an old technology. He believes it is not true and believes the opposite to be factual:
“Documentum is a strong company as they have very loyal customers. The business turns over $600M annually and has a 30 percent profit margin.”
From Dell's Aspect
Dell is the world's third largest PC vendor, and 65 percent of its revenue comes from their client business. It's been hard for industry observers to gauge Dell’s finances, since the company went private in 2013. As being said, due to the document filed by EMC with the Securities and Exchange Commission (SEC) in March, Dell was forced to reveal its accounts which show that Dell has seen a 6 percent drop in net revenue in the most recent fiscal year, largely affected by reduced sales in their biggest cash cows - the PC, services and software businesses. For this reason, the acquisition could save the day. When Dell finalizes its takeover of EMC, it will assist Dell to have a breakthrough in a broad spectrum of markets such as cloud, storage, security and virtualization.
On that note, CEO Michael Dell said the EMC acquisition would help Dell accelerate its transformation into a complete IT services and solutions provider, which is key to replace the declining revenues from its main PC and laptop business unit.
In our February show, Scott Liewehr, the co-host with The CMS-Connected Show and CEO & Co-founder of Digital Clarity Group, explained how the EMC Dell transition will affect the entire WCM industry:
The acquisition is expected to be finalized by October. After that, it’s said that Dell will take on as much as $50 billion in debt, and that’s why the company is planning to dispose of as many “non-core assets” as it can, in order to diminish the burden.
David Kirkpatrick, Chief Executive Officer at Techonomy, Steve Case, Chairman at Revolution, and Bloomberg Intelligence's Anand Srinivasan discuss Dell looking to divest assets as part of its purchase of EMC Corp. and what lies ahead for the computer maker as a private company. They speak on Bloomberg Surveillance.
Dell is currently discussing with several prospective buyers about purchasing the two units (Quest & SonicWALL) for a combined $4 billion. Private equity firms and strategic suitors have expressed interest in the disposition.
Brian G. Alexander, Managing Director & Director of Technology Research at Raymond James & Associates, expects its deal with Dell to close as planned:
"EMC and Dell have been working on integration since November, and business unit heads for the combined entity have already been named. We note that EMC already has merger approval from the US Federal Trade Commission and the EU and is expected to have a special shareholder vote this spring. We also remind investors that both companies face significant break-up fees ($4 billion for Dell and $2.5 billion for EMC) if either walks away from the transaction.”
In conclusion, two hardware giants joining forces with the goals of becoming more efficient by providing a broader product line. Before letting that moment begin, it seems that both publicly traded EMC and privately held Dell have decided to eliminate their complex ecosystems of cross-connected companies.