VMware shares soared on Monday on word that Michael Dell is ready to abandon his reverse merger plan between VMware and Dell Technologies.
Shareholders were in open revolt, and Wall Street analysts were openly negative about the prospect of the deal.
Employees weren't thrilled either, and neither were VMware's hardware partners that compete with Dell, according to reports.
The deal would have been huge, and would have given Dell a non-traditional path to going public again.
VMware shareholders are happy, and the stock is up about 7% over the close of Friday, thanks to rumors that Michael Dell is growing cold on the idea of a reverse merger — a move that would have made Dell a publicly-traded company again, after it went private in 2013 after a $24 billion buyout.
For instance, one of VMware largest investors, Jericho Capital Asset Management, was pressuring the VMware board to end discussions, Bloomberg reported last month.
And T. Rowe Price Group, the largest independent shareholder of VMware, also opposed any such deal, it told Barron's last month.
"The proposed Dell-VMW reverse merger has previously drawn public opposition by VMW shareholders, due to the slow-growth, legacy nature of Dell's core business as well as its heavy debt load," Credit Suisse's Brad Zelnick summarized in a research note on Monday.
On top of that, the merger could have crushed VMware's growth by making it impossible for it to maintain its strong partnerships with Dell's long-time hardware rivals, especially Hewlett-Packard Enterprise, CRN's Mark Haranas reported.
As we previously reported, we heard rumblings that employees inside VMware were not too happy about the idea, as well.
All told, the clear threat was that the reverse merger could lead to investor lawsuits, among other issues.
To recap what everyone was so upset about: Michael Dell's company Dell Technologies is currently VMware's largest shareholder. Dell was considering merging with VMware, essentially selling itself to the smaller company. Because VMware is already a publicly-traded company, it would mean Dell would basically go public without the need for an IPO.
That would also mean that VMware shareholders would suddenly be on the hook for all of Dell's $53 billion in debt (much of which it incurred by buying EMC), Zelnick points out, adding that VMware represents about 10% of Dell revenues but over half if its free cash flow. Under the current structure, where VMware remains an independent publicly traded company, Dell cannot lay its hands on that cash.
In fact, in 2016, EMC executives promised that after it merged with Dell, the combined company wouldn't raid VMware's cash and wouldn't harm its long-term ability to do business with its competitors.
VMware declined to comment.