As the blockbuster deal that would see faded PC giant Dell buy leading memory products maker EMC (EMC.US) for US$67 billion makes headlines, I would look at two leading Chinese candidates whose names were noticeably absent on the list of companies that might make rival bids for EMC.
I’m referring to local PC giant Lenovo (00992.HK), which has never seen an acquisition opportunity it didn’t like, and the more recently acquisitive Tsinghua Unigroup.
Both of these names could be interested in EMC for similar reasons, and each could theoretically make a rival bid for the US company.
Dell’s newly announced purchase of EMC would be one of the biggest-ever sales in the high-tech world, but also includes a 60-day period where others could make counter offers.
Other names mentioned that could make such bids include IBM (IBM.US), Cisco (CSCO.US) and Hewlett-Packard (HPQ.US), though sources say the chances of such a bid are slim.
By comparison, I expect that top executives at Lenovo and Unigroup are probably casting a more interested eye on this deal and at least briefly considering the possibility of making rival bids.
Both companies have shown an interest in similar purchases in the recent past. The biggest deterrent for both could ultimately be EMC’s high price tag, and political sensitivities could also be a secondary element.
Let’s start with the headline news, which saw Dell agree to pay US$33.15 per share for EMC, ending days of talk about such a deal. Dell would pay US$24.05 in cash per EMC share, and give the remainder of the offer price in shares of a stock that tracks virtual software maker VMware.
EMC shares rose nearly 2 percent after the deal was announced, but still remain about 15 percent below the offer price.
That would seem to indicate investors aren’t extremely confident that Dell can close the deal, and are even less convinced a higher rival bid could be coming from someone else.
Lenovo’s acquisitive history
We’ll begin our review of potential China suitors with Lenovo, which has a strong history of buying similar US tech companies and assets that are past their prime.
Lenovo has twice purchased such assets from IBM, first buying the US tech giant’s PC business a decade ago and then last year buying IBM’s low-end server business.
Lenovo also purchased the faded Motorola cellphone brand from Google (GOOG.US) last year, and was reportedly interested in buying struggling Canadian smartphone rival BlackBerry (BBRY.US) when that company was being shopped around.
What’s more, Lenovo already has a relationship with EMC, after the pair formed a joint venture three years ago to sell EMC’s products in China.
That joint venture could be jeopardized if EMC gets acquired by Dell, depriving Lenovo of an important piece to its China product line.
But at the same time, a purchase of EMC might be too much to swallow for a small company like Lenovo. The two IBM purchases cost Lenovo less than US$4 billion combined, and the Motorola deal cost it US$2.9 billion.
Thus a deal in the US$70 billion range would be a huge leap for Lenovo, whose own market value is just over US$10 billion.
But then again, Dell was only worth about US$24 billion when it privatized in 2013, which is far less than the price it’s offering now for EMC.
Unigroup’s better access to cash
Next there’s Unigroup, which seems to have better access to big cash following its aborted US$23 billion bid for US memory chip giant Micron (MU.US) earlier this year.
Unigroup has made a number of other major tech acquisitions and tie-ups over the last year with names like Intel (INTC.US) and HP, and has shown a distinct appetite for memory- and networking-related hardware companies like EMC.
Its latest deal on that front saw it purchase 15 percent of US hard drive maker Western Digital (WDC.US) at the end of last month for US$3.8 billion.
But while Unigroup seems to have access to more cash than Lenovo, a bid for EMC would still be quite pricey, costing three times the contemplated bid for Micron.
Unigroup might also think twice about such a deal for political reasons due to its close relationship with Tsinghua University, China’s leading science institute that is closely tied to Beijing.
Such political concerns led at least two leading US politicians to voice reservations about a Unigroup-Micron deal, which may have ultimately killed that plan.
I would put the chances of rival bids from either Lenovo or Unigroup at quite small, probably less than 20 percent for either.
But that doesn’t mean these two globally minded Chinese tech firms aren’t thinking about such a deal, which would certainly fit the profile of many of their other recent global acquisitions.
Bottom line: Lenovo and Tsinghua Unigroup may be considering rival bids for EMC following a US$67 billion offer from Dell, but will ultimately abandon any such plans due to high price and political sensitivities.
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