Chipmaker Broadcom is reportedly in talks to purchase VMware in a deal worth up to $50bn. If confirmed the purchase would be the latest in a string of acquisitions by Broadcom, as it seeks to reposition itself from a pure semiconductor business to a diversified tech company with cloud computing services, software and hardware products.
Update 26/05: Broadcom has confirmed its intention to acquire VMware for $61bn.
Discussions between the two companies, first reported by Bloomberg, are said to be at an early stage, however, the Wall Street Journal says talks have “picked up pace in recent days”. The WSJ report suggests the two parties are discussing a cash and stock deal, with an agreement possible in the near future.
Both companies have declined to comment on the reports.
What does the future hold for VMware?
Virtualisation pioneer VMware has been operating as an independent business since last November when its previous parent company, Dell, spun off its 81% stake in the business. Dell founder Michael Dell remains the biggest investor in VMware however, holding a 40% stake.
VMware services are used by many large companies to manage private and public cloud networks, but its share price has been declining for several years, a trend that has continued since the Dell split, making it an attractive acquisition target. There was a 15% spike in its share price today on the back of rumours about the takeover, lifting the company’s market cap from $40bn to $46bn, but this is still just half its 2019 peak value.
The split from Dell led to experts suggesting it would be able to offer more multi-cloud and software-as-service (SaaS) packages, as well as make moves into 5G and edge computing services. Part of this includes VMWare attempting to become the "Switzerland of cloud", acting as a neutral player that is accepted and used by all, with analysts suggesting it could do this without outside investment.
Why does buying VMware make sense for Broadcom?
Broadcom, under CEO Hock Tan, has been moving into software in recent years, with acquisitions of CA Technologies in 2018 and Symantec’s enterprise security business in 2019.
The firm also made a failed attempt to take over US chipmaker Qualcomm in 2018 for $121bn that was blocked by then-president Donald Trump, using an executive order and citing national security concerns over the fact Broadcom was based in Singapore at the time.
This collapse of the Qualcomm deal may have been a factor that pushed Tan towards a more diversified future for Broadcom. Analysts suggest that a VMWare deal could help Broadcom modernise its portfolio and make it relevant to companies looking for cloud services.
“This would be a great move for Broadcom,” Dave Vellante, founder and chief analyst of Wikibon said, adding “marrying up with a company that has custom silicon chips makes total sense to me. Broadcom has shown it knows how to do acquisitions and has strong relationships.”
A number of Wall Street firms have commented on the potential deal, with KeyBlanc saying: “Broadcom has stated publicly over the years it's interested in becoming an enterprise infrastructure provider, including software, where we believe VMware would be a strong fit in line with this longstanding strategy.”
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