Management Turnover as Change Agent

Friday, July 18, 2008

Update to Recent VMware CEO Change

Earlier in the month, I wrote about (view blog) the surprise CEO change at VMware VMW (NYSE) in which Paul Moritz, the former high-level Microsoft executive and at the time, head of Pi a subsidiary of EMC, was appointed to replace Diane Greene as VMware's CEO.  The change came after VMware's high flying stock which reached $130 shortly after its IPO back in August 2007 had dropped down into the $30 range.  To apparently appease VMware's troops and avoid a large brain drain, the company under Moritz has announced a new plan to assist VMware employees with the value of their stock options.  According to a story in InfoWorld,
The company disclosed in an SEC filing that it plans to offer its employees the opportunity to exchange their post-IPO ("underwater") stock options for an equal number of new options. The exercise price of the new options will be the stock price at the close of trading on the day immediately following the date that the exchange is completed. This option belongs to all U.S. based non-executive employees. Non-U.S. employees will be granted a to-be-determined proportionate number of restricted stock units after the exchange offer for U.S. employees has been completed.

Participation in the exchange is completely voluntary. Doing so may get the employee out from under water, but taking the company up on the deal will also restart the employee's option vesting schedule. Depending on the employees' goals, they may choose not to participate.
VMware is gearing up to compete with Microsoft who has produced its own product to compete directly with VMware's software.  At a minimum, Moritz recognizes the challenges he faces and is taking some concrete steps to address them.  Time will tell.  Stay tuned.  

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