One of VMware's largest shareholders has sent a scathing email to the vendor's independent directors, warning them against the mooted reverse merger that would see it acquire "dead weight" Dell.
Jericho Capital Asset Management, which owns about 1.8 per cent 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 Technologies last month confirmed that it is considering a number of restructuring options, among them the possibility that VMware acquires Dell or Dell goes public.
Dell owns around 82 per cent 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 VMW (VMware) would be a terrible deal for VMW 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 also highlighted that VMware's share price has been "battered" since rumours of the merger broke, falling as much as 28 per cent over the following weeks.
It added that the deal would "effectively amount to a "bailout of Dell and be highly detrimental to VMW shareholders".
Dell Technologies published its quarter results last week, with revenue up nine per cent year on year to $21.9bn.
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".
In a statement sent to CRN, Dell said: "We will not be commenting on matters related to the 2 February 2018 13D filing with the US Securities and Exchange Commission."
VMware said: "VMware has received a copy of Jericho Capital's letter to the independent directors of the VMware Board.
"VMware maintains an ongoing dialogue with its shareholders and values their input. The company has an experienced board of directors and sound governance practices in place.
"The board remains fully committed to acting in the best interests of all VMware shareholders."
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