The enterprise world is all shaken up Monday morning over Dell’s massive $67 billion acquisition of EMC, the largest tech-only merger deal in history.
One of Dell-EMC’s biggest competitors is the brand new Hewlett Packard Enterprise (HPE) company that will come into existence on November 1, when HP splits itself into two companies.
Meg Whitman, CEO of HP who will become CEO of the new HPE, sent out an email to all HPE employees hoping to rally the troops by pointing out what she described as the downsides of the merger.
If you recall, Whitman was reportedly in talks with EMC CEO Joe Tucci to buy EMC last year, but she walked away when the two couldn’t agree on price. It was right after that that she decided to split HP apart.
From the sound of those news reports about the HP-EMC deals, the negotiations went far, meaning HP probably got a good look at EMC’s books.
So Whitman’s comments to her troops are part competitive posturing and part real knowledge.
Business Insider obtained a copy of Whitman’s email in which she pointed out that Dell was taking on an awful lot of debt to make this deal happen, writing:
“To pay back the interest on the $50 billion of debt that the new combined company will have on their balance sheet, Dell will need to pay roughly $2.5 billion a year in interest alone. That’s $2.5 billion that they will allocate away from R&D and other business critical activities.”
Whitman also said that HPE was “two years ahead of the game” with its flash storage, open networking, and cloud computing products and that this merger would cause a lot of confusion in the market, which makes it a good opportunity for HPE.
Here’s a full email:
Seize the moment
To: All Hewlett Packard Enterprise Employees
You probably saw the news earlier today, Dell announced that they would acquire EMC for $67 billion. I wanted to take a quick moment to tell you why I (and you should too) believe this is a good thing for Hewlett Packard Enterprise and an opportunity for us to seize the moment. This is validation for the strategy that we have laid out and I am not surprised that others would try to emulate it. But, the reality is that we are two years ahead of the game and it will be difficult for others to catch up.
First, let me give a little context. To pay back the interest on the $50 billion of debt that the new combined company will have on their balance sheet, Dell will need to pay roughly $2.5 billion a year in interest alone. That’s $2.5 billion that they will allocate away from R&D and other business critical activities, which will keep them from better serving their customers.
Second, integrating EMC and Dell, which combined have more than $75 billion in revenue and nearly 200,000 employees, is no small feat. This will be a massive undertaking and an enormous distraction for employees and their management team as two very different cultures come together, leadership teams shift and an entirely new strategy is developed.
Third, bringing two portfolios together will require a significant amount of product rationalization, which will be disruptive to their business and create confusion for their customers. Customers simply will not know if the products they are buying today from either company will be supported in 18 months.
Fourth, this move is going to cause chaos in the channel as they bring together two different programs and approaches.
All of this at the very moment when we have completed our journey to create two new, focused companies. We’re organized, we have a strong balance sheet and our innovation engine is humming. So, get out in front of your customers and your partners. Tell them our story. Take advantage of this moment.