A VMware-Dell Technologies reverse merger would be “a terrible deal for VMware shareholders,” according to VMware investor Jericho Capital Asset Management. In a letter to VMware’s board of directors, the investment firm said the potential transaction would “significantly damage” VMware and suggests alternative acquisition targets including Red Hat and Palo Alto Networks.

Jericho Capital and its affiliates own about 1.8 percent of VMware.

The rumors of some sort of merger between VMware and Dell Technologies first surfaced in January. Dell Technologies owns about 80 percent of VMware, which it acquired from the Dell-EMC merger in 2016. Dell’s acquisition of EMC also nearly tripled its debt at the time, which Dell Technologies has since been struggling to pay down.

Meanwhile, VMware’s profitability has been a consistent revenue booster for Dell Technologies.

According to Dell Technologies’ fiscal fourth quarter 2018 earnings reported last week, VMware revenue for Q4 was $2.3 billion, up 20 percent year-over-year, with operating income of $834 million, up 48 percent. This accounted for more than one-third (35.8 percent) of Dell Technologies’ total revenue for the quarter.

Dell Technologies and VMware early last month finally confirmed rumors of a potential reverse merger as part of filings with the U.S. Securities and Exchange Commission (SEC).

“Even the most casual observer can see that [VMware] 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,” wrote Josh Resnick, managing member at Jericho Capital, in the letter to the VMware board. “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.”

A reverse merger with Dell would hurt VMware’s ability to retain employees and business partners, the letter says. In fact, 18-year VMware veteran Jeff Jennings recently jumped shipped to join Google. Jennings, who most recently was the senior vice president and general manager of VMware’s networking and security business, will join VMware founder and former CEO Diane Greene at Google Cloud.

The “exit of a star executive like Jennings is likely to raise further scrutiny about the risks of such a merger on VMware's leadership ranks,” according to a Business Insider article about Jennings’ departure. The “departure has stirred internal rumblings that other top talent could flee VMware if Michael Dell proceeds with a potential reverse merger.”

In addition to slamming the deal, the Jericho Capital letter proposes other software companies that it says make far more attractive acquisition targets. This includes Red Hat, Palo Alto Networks, Splunk, Tanium, and Rubrik.

Acquiring any of these companies “would likely be accretive to [VMware's] revenue growth and free cash flow, thereby driving stock price appreciation — making each far more financially compelling than a combination with Dell,” the letter said.

Dell Technologies did not immediately respond to a request for comment.

In an email to SDxCentral, a VMware spokesperson confirmed that the company received a copy of Jericho Capital’s letter. “VMware maintains an ongoing dialogue with its shareholders and values their input,” the email said. “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.”