Dell-VMware reverse merger plans slammed as 'terrible deal' by investor

VMware investor Jericho Capital Asset Management has pulled no punches
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Michael Dell

Michael Dell

Dell’s prospective reverse merger with VMware has been dealt a massive blow, as one of VMW’s largest investors has slammed it as a ‘terrible deal’ for the company and shareholders.

Jericho Capital Asset Management’s managing member Josh Resnick said that VMW ‘gains nothing’ from the deal, in a letter to the Dell subsidiary. Resnick raised concerns that the result of going public wouldn’t appeal to its growth-oriented investor base. “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. “We ask that the independent members of the board of directors of [VMware] reject any proposal for a reverse merger with Dell as we do not believe this one-sided strategy is in the best interests of [VMware] shareholders.”

New York-based Jericho Capital Asset Management and its affiliates, collectively hold a 1.8 per cent stake in VMware, making them one of the company’s top 15 investors. Resnick said that he usually refrains from speaking out however he felt ‘compelled’ this time around due to the ‘one-sided nature’ of the deal.

A representative for VMware confirmed that it had received a copy of Jericho’s letter, and maintains an ongoing dialogue with its shareholders and values their input. Dell has thus far not issued a statement on the prospect of the reverse merger.

The prospect of a reverse merger comes as Michael Dell attempts to bring all the units of his empire under one publicly traded roof. Dell confirmed in a regulatory filing last month that it was weighing options, including an initial public offering or business combination with VMware.

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