While the prospect of VMware merging with Dell Technologies has intrigued the wider market, Morgan Stanley analysts insist the "reverse merger" would be the worst option for VMware shareholders.
Several options have been mooted for Dell Technologies, including a Dell IPO or it acquiring the rest of VMware.
One of the more spectacular options has been Dell's subsidiary company VMware performing a reverse merger on its controlling firm instead.
However, the ambitious plan has been questioned by Morgan Stanley analysts Keith Weiss and Sanjit Singh in a note issued to the market.
Weiss and Singh warned investors about the plan and stated that a merger is the "worst-case scenario" for VMware shareholders.
VMware is traded publicly and a merger would take Dell public without putting the company through an initial public offering.
According to the report, the reverse merger would have tax benefits for Dell and give the company access to VMware's cash, but it would have a negative impact on VMware's shareholders.
Analysts at Morgan Stanley project that a combined company would devalue VMware by $28bn (£20bn) — considerably more than the $500m to $600m annual taxes Dell will face if it continues to operate under its existing structure.
Markets Insider reports that after VMware's stock hit a high of $150 in late January, it has dropped to around $117. Morgan Stanley expects that would "quickly" return toward its $143 price target if "the risk of a reverse merger diminishes".
The analysts concluded that the reverse merger is the least likely of the strategic options Dell is pursuing, with an IPO or staying private considered better options.
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