EMC to buy Data General for $US1.1bn

EMC to buy Data General for $US1.1bn

Storage systems, software and services vendor EMC said yesterday that it is buying Data General for about $US1.1 billion in a deal aimed to give EMC a greater share of the midrange storage market.

EMC will issue 0.3262 of a share of EMC common stock for each share of Data General common stock. Based on the August 6 market closing price of company shares, the transaction totals about $19.58 per share of Data General, which is based in Massachusetts, and whose flagship Clariion line targets midrange storage systems.

"We believe that this allows us to increase the target market as much as 40 per cent," EMC president and chief executive officer Mike Ruettgers said at a press conference yesterday afternoon.

The deal is the result of EMC hearing from customers that they have midrange storage needs that are not being met, he said. Internet companies need to be able to rapidly scale storage systems that are always up. EMC has also heard that customers need storage systems that connect homogeneously, he said, adding that after looking around at companies EMC could acquire, it was decided that Data General's Clariion line would offer customers what they most want.

Globally, EMC has 12,000 employees. The company is looking to hire 1500 more people, most of them at the Massachusetts headquarters, Ruettgers said. Data General has some 5000 employees globally. The headquarters of both offices are within five miles of each other. Corporate headquarters will remain at the EMC site, Ruettgers said.

Most employees apparently will keep their jobs, although Ruettgers said that since he expects there will be cross-over in job responsibilities, some positions will be eliminated. However, he added, "I don't think it will be significant." Data General has a slightly older workforce and so some employees there will probably opt to retire, he said.

One job that seems in the air is that of Ron Skates, Data General president and CEO, who said that his main role in the coming months will be to help make certain the transition is smooth. Beyond that, he said he can't say what he'll be doing.

The merger is likely to be positive for EMC and Data General customers, analysts said yesterday.

"This is probably going to be good for the customers of both companies," said Robert Gray, research director for storage at market researcher International Data Corp (IDC), based in Framingham, Massachusetts. "This will broaden the business for EMC. EMC has clearly demonstrated the ability to both develop products and to manage the storage business to the highest level of competencies. This [merger] means that Clariion products will be assertively brought and presented to a broader set of clients. EMC has a very large sales organisation."

During a teleconference with analysts yesterday morning, EMC officials said that they intend to push the products acquired from Data General's product line, using the Aviion server business to broaden niche product lines, said Gray. EMC said in that call and also in a written statement that the Aviion line will operate as a separate unit, focusing as it has in the past on the NUMA (non-uniform memory access) architecture, corporate Windows NT and the health-care market. That line also will continue to be targeted at the petroleum industry, EMC said during the teleconference, according to Gray.

EMC has no plans to spin off the Aviion division in the future, Ruettgers said at yesterday's press conference.

Because the storage needs of most corporate users grow by 100 per cent compounded annually, companies increasingly have to look at consolidating storage and must also consider both the storage needs of computer rooms and storage that is part of LANs (local area networks) and desktops, referred to broadly as "network attached storage" or NAS, said Gray.

EMC hasn't had a product line for that NAS market, which IDC expects to grow 30 to 50 per cent per year, reaching $5 billion in 2003, Gray said.

EMC officials also spoke at the teleconference about porting or making available some of their software tools and capabilities to the Clariion midrange market, Gray said. The midrange market is a broad area, covering a wide price range in terms of hardware. Dominated by the Unix operating system and its various flavours, the market encompasses everything from storage systems starting at $2000 to those costing millions.

Considering the size and strength of that market, it's no surprise that EMC has set its sights there, analysts said.

Gray was "not at all surprised" by the announcement of the deal, which is subject to shareholder approval and regulatory review. "We have recommended for roughly three years that Data General either reconstitute themselves as a storage company and make their investment there or merge," he said.

Analyst David Hill at Aberdeen Group in Boston hadn't expected Data General to merge with EMC necessarily, although he said there were indications that such a pairing might be possible.

"The point is that EMC wants to continue its growth pattern over the next years and this is one way they can do that," he said, adding that the element of surprise comes from the fact that EMC has not traditionally made such large acquisitions.

"But they actually got it for a reasonable price," he said of the Data General deal.

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