M&A

Meg Whitman: Dell-EMC Deal Spells Opportunity for HP

The planned transaction will distract the parties' management and employees and cause a massive debt load that will stifle R&D spending, Whitman says.
Katie Kuehner-HebertOctober 13, 2015

Hewlett-Packard chief executive Meg Whitman thinks Dell’s planned acquisition of EMC will present an opportunity for her company because of the large debt load arch-competitor Dell likely will be taking on.

Whitman on Monday told employees in a memo that the Dell-EMC deal, announced earlier that day, was actually “a good thing for Hewlett Packard Enterprise and an opportunity for us to seize the moment,” according to Silicon Beat, the San Jose Mercury News’ technology blog.

“This will be a massive undertaking and an enormous distraction for employees and their management team,” Whitman wrote. “All of this at the very moment when we have completed our journey to create two new, focused companies.”

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She said that Dell’s deal for EMC was a validation of HP’s strategy and that she was “not surprised that others would try to emulate it.”

But, she wrote, “the reality is that we are two years ahead of the game and it will be difficult for others to catch up.”

CNNMoney reported that Whitman told employees Dell wouldn’t have much cash left over to spend on developing and working on new ideas, because the company will be saddled with annual interest payments of $2.5 billion.

“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,” Whitman wrote.

Perhaps Whitman’s reasoning was intended mostly to cheer up employees’ morale at a time of great upheaval for HP. Daniel Ives, an analyst for FBR Capital Markets, told CNNMoney that while the combined entity would have roughly $50 billion in gross debt on its balance sheet, both companies also generate a great deal of cash, which makes them attractive to bond investors. EMC’s balance sheet is currently sitting on $13 billion in cash and short-term assets.

“They are cash cow businesses,” Ives told CNNMoney. “The worries about the deal are more about integration and putting the company together.”

Dell said the combined company would focus on rapidly paying down debt in the first 18 to 24 months after the deal is completed.