Jericho Capital has penned a stiff missive attacking a potential deal that would see VMware acquire Dell.
For those who came in late, Jericho is one of VMware’s largest shareholders rather hacked off that it might be considering a reverse merger that would see it acquire “dead weight” Dell.
Jericho owns about 1.8 percent of VMware, has made the letter public today, in which it claims that the prospective deal would “likely lead to the significant destruction of shareholder value”.
Parent company Dell has confirmed that it is considering some restructuring options, among them the possibility that VMware acquires Dell or Dell goes public.
Dell owns around 82 percent of VMware but is obliged to declare any potential changes in ownership because VMware is publicly listed.
“There is no doubt in our mind that a reverse merger of Dell into VMware would be a terrible deal for our shareholders”, the letter read.
“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.”
Jericho pointed out that VMware’s share price has been “battered” since rumours of the merger broke, falling as much as 28 percent over the following weeks. It did not like the idea that the deal would “effectively amount to a “bailout of Dell and be highly detrimental to VMW shareholders”.
Instead, Jericho suggested five alternative acquisitions targets for VMware: Red Hat, Palo Alto Networks, Splunk, Tanium and Rubrik.
These vendors, it claimed, “have a more compelling acquisition rationale than an acquisition of Dell”.
