VMware Shareholder Slams Terrible Dell Talks

VMware Shareholder Slams Terrible Dell Talks

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One of VMware’s largest investors called on its board to end talks with Dell about a potential reverse merger, arguing it would be a “terrible deal” for the company and shareholders, according to Bloomberg.

Jericho Capital Asset Management and its affiliates, which said they collectively hold a 1.8 percent stake in VMware, making them one of the company’s top 15 investors, said in a letter that a reverse merger would derail the company’s current prospects. The resulting public company wouldn’t appeal to its growth-oriented investor base and would likely trade at a steep discount to what it would as a standalone firm.

Jericho Managing Member Josh Resnick said in the letter that such a deal would benefit only Dell’s interests by servicing its debt with VMware’s cash flow instead of funding buybacks or other acquisitions. “Even the most casual observer can see that VMW gains nothing by saddling the company’s faster growth, net cash, highly strategic software business with the dead weight of Dell’s slower growth, heavily debt-laden, legacy hardware-dependent entity,” Resnick said, referring to the company by its ticker.

Resnick said his fund generally refrains from commenting publicly on corporate proposals but felt compelled to speak out given the “one-sided” nature of the proposed transaction. A reverse merger could limit VMware’s ability to retain employees and partner more broadly with Dell’s competitors, as well as possibly disrupt its current business strategy, according to the letter from Jericho.

If VMware decides to explore strategic alternatives, it would be better served by pursuing deals with companies other than Dell, according to the letter. Possible acquisition targets could include software firms such as Red Hat, Palo Alto Networks, Splunk, Tanium or Rubrik, Resnick said. Buying any one of the companies Jericho Capital has proposed would fit with VMware’s current strategy and be accretive to its revenue growth and cash flow, he added.

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