VMware CEO Says Dell's Acquisition of EMC Will Have Positive Impact

In recent TV interviews, CEO Pat Gelsinger says having Dell as the primary shareholder will help accelerate growth for the virtualization company.

VMware CEO

From the time Dell executives announced in October 2015 the company's $67 billion bid to buy storage vendor EMC, a lot of attention was paid to how the deal would impact the future of VMware, the key company in EMC's federated business model.

There was worry that Dell would throttle VMware's independence or raid its cash reserves to help pay down its post-acquisition debt, which could amount to as much as $50 billion. Such worries helped drive down VMware's stock price in the weeks following the announcement, and that was followed by reports in May that VMware CEO Pat Gelsinger was planning to leave the company once the deal went through. Executives with all three companies—including Gelsinger himself—quickly denied the reports.

In recent weeks, Gelsinger has been vocal about the Dell-EMC deal, which he said will have a positive impact on VMware and should not significantly change its trajectory going forward. In interviews this week with CNBC and Bloomberg TV, Gelsinger pointed out that Dell CEO Michael Dell has repeatedly said his intention is to grow VMware's business.

"As I've described it, I've changed an 'E' for a 'D,'" he told CNBC. "I had a majority shareholder named EMC. [Now] I have a new majority shareholder named Dell, who's committed to continue to accelerate our growth but maintain our independence and ecosystem."

EMC owns about 80 percent of VMware, which is a publicly traded company. Dell went private in 2013 after Michael Dell and Silver Lake Partners bought it for $25 billion. Once the deal is completed, VMware—a $7 billion company with more than 9,000 employees and more than 250,000 customers—will continue to be a public company, with Dell parent company Denali Holdings being the primary shareholder.

When the acquisition was announced, it surprised a lot of people, not only because of the players involved but because of the size of the deal, which is the largest in tech industry history, Gelsinger said. However, VMware had solid financial numbers the past couple of quarters, and now with the financing being lined up and with the EMC shareholder vote scheduled for July 19, the deal should be completed soon, the CEO said. Then VMware and the other companies involved can move forward under the new business model.

After the initial shock that came when the acquisition was announced, "pretty quickly … people sort of got over the logic of the deal and got back to business," Gelsinger said.

He told Bloomberg TV that he isn't concerned about Michael Dell's role with VMware once the deal closes. Michael Dell will be more involved, but even now Gelsinger speaks often with him, and he expects the Dell CEO will continue to support VMware.

"For EMC and Dell, this is a full-on merger," he said. "For VMware, it's a change of ownership, but no big deal. We remain an independent company [with] independent shareholders [and] an independent ecosystem."

Gelsinger also said the deal makes sense to him, despite comments by Hewlett Packard Enterprise CEO Meg Whitman that the way to navigate through the changing IT industry landscape is to get smaller and more focused. Whitman oversaw the breakup of HP in November 2015 that created two new companies—HPE, which sells enterprise IT solutions and services, and HP Inc., which includes the PC and printer units from the old company.

"In a period of industry consolidation—and the hardware industry in particular is not a growth industry anymore—standard, textbook MBA [advice] is to consolidate—maximize the supply chain [and] distribution strength. To me, this is a fairly textbook play by Michael," Gelsinger said.