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Technology Stocks : EMC How high can it go? -- Ignore unavailable to you. Want to Upgrade?

To: DownSouth who wrote (7398)	8/10/1999 9:03:00 AM
From: John Carragher	Respond to of 17183

August 10, 1999 EMC to Buy Data General in a Move To Add Less Expensive Line to Its Mix By WILLIAM M. BULKELEY Staff Reporter of THE WALL STREET JOURNAL High-flying computer storage maker EMC Corp., seeking to add a less expensive product line to its arsenal, agreed to acquire Data General Corp. in a stock deal valued at about $952 million. The deal would extend EMC's lead in the storage market and give it access to Data General's line of computer servers, which are large computers used to lash together corporate computer networks. Data General, which achieved fame in the 1980s after it was showcased in Tracy Kidder's Pulitzer Prize-winning book "The Soul of a New Machine," has been struggling in recent years. The company's two main product lines -- computer storage and computer servers -- have been plagued by marketing and distribution problems. Under terms of the deal, EMC will give 0.3262 share for each of Data General's 51.2 million shares outstanding. The purchase price was well below Data General's 1998 revenue of $1.46 billion but represents about a 30% premium over Data General's stock price before the deal was announced. Bolstering Product Line Analysts said the deal would bolster EMC's product line by giving it access to Data General's line of midrange storage devices. EMC, Hopkinton, Mass., has focused mainly on selling devices to customers that need to store huge amounts of data; Data General, based a few miles from EMC in Westboro, Mass., sells mainly to customers with smaller storage needs. Data-Storage Linkup EMC will acquire Data General for about $952 million. Company Basics (1998 figures) EMC Data General-a Headquarters Hopkinton, Mass. Westboro, Mass. CEO Michael C. Ruettgers Ronald L. Skates Employees 11,200 4,991 Revenue $3.97 billion $1.46 billion Net Income/Loss $793 million -$152 million-b Market Cap. $57.70 billion $883 million a-For year ended Sept. 30 b-Includes $135 million restructuring charge. But some analysts worried that taking on Data General might lower the company's profit margins. "Strategically it makes sense. Financially it's not as clear," said Steven Milunovich of Merrill Lynch. EMC has established itself as a Wall Street darling by delivering quarter after quarter of revenue and profit growth topping 30%. The company also boasts an operating margin, or earnings before taxes and interest income as a proportion of revenue, of about 28%. Data General has reported losses in most of its recent years. EMC shares fell $3, or 5%, to $57 in New York Stock Exchange composite trading Monday. Also on the Big Board, Data General rose 32%, or $4.25, to $17.4375. The implied price of $18.17 for each Data General share isn't much above the company's July high of $17 and is less than the January high of $21.81. Analyst Don Young of PaineWebber said that EMC "effectively stole" Data General. Mr. Young said it is possible that another computer company could emerge with a higher bid. However, any competitor would have to pay a breakup fee equal to about 5% of the deal's value, according to EMC. The deal is subject to approval by Data General shareholders and antitrust review. 'Massachusetts Miracle' Data General achieved fame as one of the anchor companies of the 1980s' "Massachusetts Miracle." However, the company, like many others along the Boston area's Route 128 technology corridor, missed the personal-computer revolution. In recent years, Data General has focused on selling its hardware to other companies, which then resell it under their own names. But sales plunged last year when one big customer, Hewlett-Packard Co., ended its agreement. This spring, Data General announced it would spend $100 million to build a major direct sales force, and it forecast several quarters of financial losses as a result. Ronald L. Skates, president and CEO of Data General, said the deal will give Data General the benefit of EMC's much heralded sales force, which is credited with being one of the most effective in the high-technology industry. Year-End Target Date EMC Chief Executive Michael C. Ruettgers said he expects the acquisition to be accretive to its fiscal-year 2000 earnings and significantly accretive to fiscal-year 2001 earnings. Mr. Ruettgers added that the proposed deal will boost EMC's forecast of reaching $10 billion in sales in 2001, but declined to give guidance on how much higher those projections would go. The companies said they expect to complete the deal before year end. The deal also will help EMC fill job openings, which some analysts say has been limiting its ability to grow. EMC has 1,500 positions open, including many for engineers. Data General's AViiON server business, which makes midrange computers, will operate as a separate unit of EMC. Although this business differs from EMC's core businesses, EMC said it doesn't have plans to sell it and would be forbidden from doing so for at least two years because the acquisition is a stock-for-stock "pooling" transaction. Morgan Stanley Dean Witter & Co. advised Data General on the transaction and Lehman Brothers Holdings Inc. advised EMC.