EMC Corp., the data storage company that is preparing to unveil an agreement to be acquired by personal computer maker Dell Inc. as early as Monday, is also planning to seek other suitors.
Reuters is reporting that EMC has asked for a “go shop” provision to be included in the merger agreement that will allow it to solicit bids from other parties and pay a discounted breakup fee to Dell if there is a deal with another company.
Such a clause, although not unusual in merger agreements, shows how EMC chief executive Joseph Tucci is preparing to exhaust all arguments to convince the company’s shareholders that a deal with Dell is the best possible outcome for them.
While IBM Corp., Cisco Systems Inc. and Hewlett-Packard Co. could theoretically be potential suitors for EMC, which has a market capitalization of US$53.6 billion, the chances of them challenging Dell with a rival offer are slim, according to sources.
The negotiations between Dell and EMC, as well as talks with banks about securing debt financing, continued on Sunday.
The two sides hope to unveil an agreement on Monday or Tuesday.
The acquisition of EMC, which would be the largest technology sector deal on record, would help Dell diversify away from the stagnant personal computer market and give it the scale to attack the faster-growing and more lucrative market for managing and storing data for businesses.
Dell is planning to pay for most of the deal with cash,although it will also give EMC shareholders a special stock that tracks the market value of VMWare Inc., the virtualization software company majority-owned by EMC.
A “go-shop” provision is not without risks for the acquirer.
In the case of Dell’s acquisition by its founder Michael Dell and private equity firm Silver Lake in 2013, the clause allowed activist investor Carl Icahn and private equity firm Blackstone Group LP to submit rival offers.
While Michael Dell’s consortium prevailed, pressure from Icahn and other Dell shareholders resulted in the acquisition price being sweetened by more than US$350 million to US$24.9 billion.
EMC already has a prominent activist, Elliott Management, among its shareholders.
Elliott could push for a sweetened bid if it is unhappy with the price.
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