S&P affirms Dell ratings, but warns of possible downgrade

NEW YORK: Standard & Poor's affirmed computer manufacturer Dell's BB+ credit rating on Monday but warned it could downgrade it if the company increases leverage significantly to help finance its planned US$67bn acquisition of EMC Corp.

Privately-held Dell is expected to finance the purchase of the data storage company using debt, stock and cash.

"We would lower our rating on Dell if the company experiences acquisition integration challenges, leading to significantly weaker-than-expected revenue growth and profitability and adjusted leverage exceeding 4x," S&P said in a statement.

However, S&P said it could raise the rating to investment grade "if the company is able to execute its plan of achieving the expected cost savings and repay debt, leading to leverage sustained below 3x."

Moody's, meanwhile, placed Dell's Ba2 ratings on review for upgrade.

"Despite the significant increase in debt and initial leverage, Dell's overall credit profile will be enhanced with the acquisition of EMC, a merger that will create the largest private technology company in the world based on revenues, Moody's said.

S&P placed its A rating on EMC on CreditWatch with negative implications.

The deal valued EMC at $33.15 a share as of the end of trading Friday, Reuters reported.

Dell said it will pay $24.05 per share in cash and in addition to a tracking stock linked to a portion of EMC's economic interest in the VMware business. EMC shareholders are expected to receive about 0.111 shares of new tracking stock for each EMC share, Dell said.

Jesse Cohn, senior portfolio manager at Elliott Management Corporation and a shareholder in EMC, said in a statement: "Elliott strongly supports this deal."

Following completion of the transaction, Michael S. Dell, chairman and chief executive officer of Dell, will lead the combined company as chairman and CEO.

The transaction is expected to close in the second or third quarter of Dell's fiscal year ending Feb. 3, 2017.