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‘Dead weight’ Dell would destroy VMware’s value, says big investor

Jericho Capital says deal would benefit Dell alone, suggests VMware buy Red Hat instead

Investment firm Jericho Capital Asset Management L.P has departed from its usual practice of not commenting publicly on deals by publishing a scathing letter addressed to VMware’s independent directors decrying a reverse merger between VMware and Dell.

Jericho owns around 1.8 per cent of VMware, enough to make it a big investor but not enough that it must legally disclose its holding or to let it press for a seat on the board. But anyone can issue a press release and that’s how the firm’s letter appeared.

Man vs paperwork. Paper-pusher loses control. Photo by Shutterstock

Dell intranet post said VMware slurp disclosure was mere paperwork


The letter says Jericho felt “it is important to comment publicly at this time before Dell goes too far down the road in pursuit of a strategy that would effectively amount to a bailout of Dell and would be highly detrimental to VMW’s shareholders [VMW is VMware’s stock ticker].”

“There is no doubt in our mind that a reverse merger of Dell into VMW would be a terrible deal for VMW shareholders,” the letter said. “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.”

The letter goes on to say a reverse merger “would burden the Company [VMware] with a massive debt load and benefit solely its majority shareholder, and also cites similarly negative views on the deal expressed by eight investment firms.

Jericho managing member Josh Resnick therefore suggests VMware should stick with its current strategy, but that if it must make acquisitions it should look in any direction other than Dell. His letter suggests Red Hat, Splunk, Palo Alto Neworks, Rubrik and Tanium as far more suitable acquisition targets.

Resnick signed off with a request to meet VMware’s independent directors.

Those worthies may also be interested to read posts like this Glassdoor post titled “Dell/VMware merger is a terrible idea", or to know that news of the departure of VMware networking and security supremo Jeff Jennings reached The Register in an email that also said "… there is also a lot of angst among the engineering ranks of VMware on this whole Dell/VMware reverse merger scenario".

“People feel like Silver Lake [the company that backed the Dell/EMC deal] is forcing this scenario on them,” the email continued. “They all want to be independent.”

The Register doesn’t assume all such emails and posts are written with the purest of motives. But speculation about Dell and VMware isn’t going away and if anyone thinks a reverse merger is a good idea, The Register is yet to hear from them! ®

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