Gelsinger: Dell Going Public Is A 'Very Good Outcome' For VMware


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Pat Gelsinger VMware CEO
Pat Gelsinger

VMware CEO Pat Gelsinger credited his team for executing in the sales trenches during a grueling five months dealing with distraction as the VMware and Dell Special Committees decided the fate of the two companies, resulting in a "very good outcome."

"I kept going in front of the broader teams and saying, '[VMware CFO] Zane [Rowe] and my job is we have to go manage this [process]. Your job is to keep us executing'," Gelsinger said in an exclusive interview with CRN. "'Anything other than great execution by you weakens our position as we go through this period of uncertainty.'"

Gelsinger's comments came after Dell Technologies Monday said it reached an agreement to go public again on the New York Stock Exchange as part of a share or cash swap with its DVMT VMware software business tracking stock.

[Related: 5 Things Dell Partners Need To Know About Dell Going Public]

As part of the deal, VMware's board of directors has approved an $11 billion one-time special dividend to all VMware shareholders.

Dell owns 82 percent of VMware, which will remain an independent, publicly held company after the transaction.

VMware, which was grappling with speculation that it may be subject to a reverse merger with its parent Dell, reported 14 percent year-over-year sales growth to $2.01 billion for its first fiscal quarter, ended April 31. The company also raised guidance for its second fiscal quarter earnings to $1.49 per share, above consensus estimates of $1.34.

"I'm thrilled," Gelsinger said. "That was a great example of the team staying highly focused, even as Zane and I were somewhat distracted as we had to spend a fair amount of time working through it, and obviously this week we got to a very good outcome."

Robert Keblusek, CTO of Sentinel Technologies, a Downers Grove, Ill.-based Dell EMC and VMware top partner, said there have been no customer concerns or VMware sales hiccups over the past several months with Gelsinger leading the charge.

"Even while Pat's been doing all these things in the background, we have not seen a misstep," said Keblusek, noting his VMware sales have remained strong. "We haven't really heard any of our customers express concern over what's going to happen with VMware. We did hear that when EMC was going to be acquired by Dell, but in this change with Dell becoming public, we did not experience any turmoil from the VMware perspective at all. They haven't missed a beat. Whatever he's done in the background and in the foreground, he'd done a great job."

C.R. Howdyshell, president of Rolta AdvizeX, a VMware partner based in Worthington, Ohio., told CRN that even with the recent distraction of Dell going public, Gelsinger has increased confidence within the channel.  He's done that by investing in more resources that enable partners to execute effectively on emerging VMware's emerging technologies.

"It has been encouraging to see Pat Gelsinger continue to focus on the channel to accelerate VMware's growth, given all the distractions with Dell going public and what could be considered as more short-term objectives," Howdyshell told CRN.

As Gelsinger prepares to climb Mount Kilimanjaro in a charity fund raising mission, the company he leads remains closely allied with Dell and on its current track toward a hybrid cloud future.

In  February, Dell formed a special committee made up of industry heavy hitters former AT&T Chairman and CEO David Dorman and former Accenture CEO and Chairman William Green. That Dell Special Committee had been  evaluating various alternatives aimed at determing what was best for both Dell and VMware.

VMware also formed a special committee aimed at maximizing shareholder value.

Both committees also sought insight and guidance from a slew of independent financial and legal advisors.

Additionally, the Dell special committee received feedback from more than 20 stockholders representing nearly 40 percent of the outstanding stock of Dell's Class V common stock while also seeking independent analysis on key aspects of strategy and model underlying Dell's financial projections. The group of industry veterans and advisors poured over data and analysis to consider four business options, which included the potential business combination of Dell and VMware.

The negotiations in recent months over Dell re-entering the public market through a financial maneuver with VMware had, indeed, been a distraction to himself, CFO Zane Rowe and senior finance and business development leaders, Gelsinger conceded.

"It took a while as we worked through the board, special committees, but it was also highly compartmentalized," he told CRN.

Under the terms of the deal, Round Rock, Texas-based Dell will exchange each share of the DVMT tracking stock for 1.3665 shares of Dell Technologies common stock, or $109 per share. As part of the deal, VMware's board of directors approved an $11 billion one-time special dividend to all VMware shareholders.

In an email to Dell's sales teams on July 2, Marius Haas, president and chief commercial officer, and Bill Scannell, president of global enterprise sales and customer operations, said the transaction will allow VMware to remain independent while maintaining "revenue synergies" that contributed $400 million in fiscal year 2018 and are on track to generate $700 million in revenue next year, eclipsing synergistic gains the company initially had expected.

"VMware has thrived as part of the Dell Technologies family and has seen tremendous traction and strategic relevance with all our customers, resulting in significant revenue growth and financial performance," Haas and Scannell said in the email.

"After the transaction, this winning formula will continue with VMware retaining its independent status, strategy and capital allocation policy," Haas and Scannell told their sales teams.

Now that VMware's independent status has been cemented, Gelsinger is ready to climb Mount Kilimanjaro to help fund construction of a high school for girls in Kenya.

"Next stop is 19,341 feet," Gelsinger said.

Mark Haranas contributed to this story.

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