Broadcom is in talks to acquire Palo Alto-based virtualization giant VMware. Reportedly valued at $60 billion, VMware’s acquisition would become the second-biggest tech acquisition this year after Microsoft’s acquisition of Activision Blizzard. Twitter’s $46 billion+ acquisition by Elon Musk is currently on hold.
Yet another mega tech deal may be on the cards this year, and it’s not even the end of May. According to an unnamed source who spoke with Bloomberg, semiconductor and infrastructure software company Broadcom is planning to acquire cloud virtualization company VMware.
The deal, expected to cost Broadcom tens of billions of dollars, could be announced this week. At $115.95, VMware’s market capitalization stands at $39.42 billion as of May 24, 2022. This is approximately 15% higher than Friday last week, the only redeeming feature of an otherwise uncertain market and the global technology downturn observed in recent weeks.
It remains to be seen if the uptrend continues considering Broadcom was trading at 3.4% lower than Friday’s closing. Bloomberg’sOpens a new window source said the deal could be valued at as much as $60 billion, a ~50% premium over Friday’s close and 21% more than Tuesday. However, a purchase price of $140 per share would still be less than VMware’s all-time high of $203.64 in May 2019.
Michael Dell, who serves as the chairman of VMware, owns 40% of VMware shares, and the company’s sale will fetch a handsome return on his investment made in 2016 through the acquisition of EMC (now Dell EMC), which initially acquired VMware in 2003.
VMware pioneered the commercialization of virtualization and offers a diverse set of cloud-native solutions. As such, much of VMware’s weight comes from its cloud-based products. The company, however, also caters to the server, desktop, application, storage, and network virtualization domains.
VMware’s role in making machine provisioning, application management, fault isolation, capacity management, performance visualization, resource sharing and management, etc., more efficient has propelled it as one of the premier virtualization software providers.
On the other hand, Broadcom, a largely hardware-driven company, has increasingly ventured into the software segment. The San Jose, CA-based company acquired IT management software vendor CA Technologies for $18.9 billionOpens a new window in July 2018 and cybersecurity company Symantec for 10.7 billionOpens a new window in August 2019.
With details under the wraps, it is unclear precisely how Broadcom plans to leverage VMware. It certainly could help the company attain a unique position, right at the crossroads of hardware, enterprise software, security, and cloud.
Moreover, it could also help the $214 billion company further diversify its core while placing its bets in the software space. Daniel Newman, founding partner and principal analyst of Futurum Research, assessed that the acquisition would expand Broadcom’s software segment by almost 3x and increase the share of software offerings of the whole company to nearly 50%.
See More: Cisco’s Planned $20B Splunk Acquisition: Boom or Bust?
“This play by Broadcom aligns with Tan’s acquisition strategy targeting quality software names with good cash flow that can operate efficiently and further transform Broadcom from a chipmaker to a diversified technology firm,†Newman wroteOpens a new window .
“The rapidly growing demand for more disaggregated architectures, including Storage, Network, Security, and AI, has seen software play a vital role in bringing hardware and software closer together to create more powerful processing for a vast landscape of needs.â€
On the flip side, some tech leaders and analysts have expressed concerns over Broadcom’s perceived inability to accomplish its strategic goals for its previous acquisitions. More importantly, VMware is considered an important player in cloud-based virtualization, with even AWS using its hypervisors.
Intel CEO Pat Gelsinger told Bloomberg TV at the World Economic Forum in Davos: “I’m sort of mixed on the current thinking. If it helps VMware be a more compelling, innovative growth story, then it’s good – if it does not, then it’s not good.â€
Gelsinger, who left VMware in January last year to rejoin Intel, added, “I put eight years of my life – my soul – into VMware. So, I was a bit startled reading that.â€
Newman, however, has a different opinion. He wrote, “I’m hearing this a lot, but personally do not find it to be as big of a concern as some. Broadcom does have an approach with acquisitions that won’t always make the innovators happy, but the strategy thus far has worked — especially for shareholders.â€
The deal will be subject to shareholder approval once announced. Going by the source, Broadcom’s offer to acquire VMware would be a cash-and-stock one and financing is secured.
Updated on May 26, 2022
Broadcom confirmedOpens a new window it is acquiring VMware today for $61 billion, pegging each share at $142.50, an 18.21% premium over Wednesday’s close. The cash-and-stock deal is subject to regulatory approvals and is expected to close in the fiscal year 2023.
“VMware’s platform and Broadcom’s infrastructure software solutions address different but important enterprise needs, and the combined company will be able to serve them more effectively and securely,†said Tom Krause, president of Broadcom. “We have deep respect for VMware’s customer focus and innovation track record, and look forward to bringing together our two organizations.â€
Let us know if you enjoyed reading this news on LinkedInOpens a new window , TwitterOpens a new window , or FacebookOpens a new window . We would love to hear from you!