Broadcom buys VMware for R951 billion – Report
Broadcom Inc. may announce a deal to acquire cloud computing company VMware Inc. as soon as this week, according to people familiar with the matter, establishing a successful technology deal that would transform the chip maker into a highly specialized software area. .
The offering is likely to be mostly in the form of shares, but would include a large cash element, said one of the people who asked not to be identified because the matter is not public.
Funding for the transaction is in place, the person added.
VMware, backed by billionaire Michael Dell, currently has a market valuation of approximately $ 50.3 billion.
Discussions on the acquisition are ongoing and there is still no guarantee that the talks will lead to a deal.
Representatives of the two companies did not immediately respond to requests for comment.
The Wall Street Journal reported that the offering could be around $ 140 per share, or $ 60 billion (R950.9 billion).
An acquisition at that price implies a price-to-earnings ratio of at least 17, and that’s consistent with recent software deals, according to Bloomberg Intelligence analyst Woo Jin Ho.
VMware stock was up 25% to $ 119.43 in New York Monday after Bloomberg News first reported the talks were clandestine.
This was the largest one-day gain since 2007. Broadcom, which has a valuation of approximately $ 215 billion, was down 3.1% to $ 526.36.
A deal for VMware would rank among the largest acquisitions ever of a technology company.
The sector has been one of the bright spots for bankers in recent months, even as the overall pace of deals slows from the record pace of 2021.
Acquisitions of technology companies globally increased 46% this year to $ 263 billion, according to data compiled by Bloomberg.
The count was backed up by Microsoft Corp.’s January deal to buy video game publisher Activision Blizzard Inc. for $ 69 billion.
A consortium backed by Vista Equity Partners is acquiring software maker Citrix Systems Inc. for $ 13 billion, while Elon Musk announced a $ 44 billion deal for Twitter Inc. last month.
The transaction would extend a series of acquisitions for Broadcom CEO Hock Tan, who has built one of the largest and most diversified companies in the chip industry.
Software has been a key focus in recent years, with Broadcom purchasing CA Technologies in 2018 and Symantec Corp.’s corporate security business in 2019.
In March, Tan told analysts in a post-earnings call that Broadcom had the capability of a “good size” acquisition.
“Investors have increasingly focused on Broadcom’s appetite for another acquisition of strategic or platform enterprise software, especially given the recent squeeze in software valuation,” Wells Fargo analysts wrote after the Bloomberg report.
“A VMware acquisition would be considered strategic; consistent with Broadcom’s focus on building an in-depth software strategy for corporate infrastructure. “
The Broadcom offering structure as primarily shares will allow VMware shareholders to participate in the upside from the substantial synergies the deal is expected to produce, said the person familiar with the situation.
Even without taking synergies into account, the transaction could increase earnings by 5% to 10%, Ho of Bloomberg Intelligence said Monday in a report.
Broadcom manufactures a wide range of electronics, with its products ranging from iPhones to industrial equipment.
Data centers, in particular, are a vital source of growth, and increasing amounts of software offer the company more ways to target that market.
VMware produces virtual software that allows users to access systems remotely. Businesses don’t have overlapping products, but they are often used together to manage data centers.
Broadcom faced antitrust scrutiny over its contracts that required equipment manufacturers to use its chips in set-top boxes and broadband Internet devices.
The company settled with the European competition authorities in 2020 and with the US Federal Trade Commission last year.
Information reported last month that the FTC is re-examining Broadcom’s use of agreements that require companies to exclusively use its hardware.
Given Broadcom’s history, antitrust regulators are likely to investigate whether a deal with VMware would give the combined company greater leverage to seek exclusivity with customers.
Broadcom what previously in negotiations to acquire SAS Institute Inc., a closely controlled software company worth $ 15 to $ 20 billion. But those discussions ended last year without a deal.
Tan was also thwarted in his biggest takeover attempt of all: an offer to buy rival chip maker Qualcomm Inc.
where you go Leave since that deal in 2018 after Broadcom met with resistance from the Trump administration.
One concern was Broadcom’s Singapore headquarters and the company has since moved its home to the United States. It is now headquartered in San Jose, California, approximately 20 miles from VMware’s Palo Alto headquarters.
VMware, founded in 1998, is a pioneering Silicon Valley company that has already changed hands more than once.
He invented so-called virtualization software, which consolidated applications and workloads on fewer server computers using each server to manage more than one program.
But with moving more businesses to the cloud, VMware has struggled to maintain growth and carve out a key role for itself.
The company eventually partnered closely with Amazon.com Inc., a major cloud storage and service provider.
VMware was acquired by storage technology giant EMC Corp. in 2004.
That company then sold a portion of its stake as part of VMware’s initial public offering three years later.
The business passed to Dell Technologies Inc. when that company acquired EMC in 2016. VMware then unbundled from Dell last year.
Michael Dell and private equity firm Silver Lake remain the main investors in VMware, according to data compiled by Bloomberg.
The software would help reduce Broadcom’s reliability on chips. But his previous forays into that market haven’t always been applauded by investors.
Tan said he looks for businesses that are “franchises” – those that hold a strong market position and can be made more profitable without investing huge investments.
Shares of Broadcom and VMware had both fallen roughly 18% this year through the end of last week, damaged by a larger rout. But they weren’t hit as hard as many tech stocks.
The Philadelphia Stock Exchange Semiconductor Index fell 27% this year.
Chip makers like Broadcom have seen booming sales in recent years, fueled by the spread of semiconductors to more products, as well as the need for work-from-home technology during the pandemic.
But Tan warned that boom times probably won’t last.
Even after giving a optimistic sales forecasts in March, Tan said the semiconductor industry will not be able to stay on its current trajectory.
He expects the chip business to decelerate to historic growth rates of around 5%.
“If anyone tells you otherwise, don’t believe it, because it never happened,” he said on a conference call at the time.
Industry leaders who say the semiconductor industry can grow at its current pace over a long period are “dreaming,” he said.