Five Things to Know About Broadcom’s Potential Deal for VMware

Text size

Broadcom
’s
expected acquisition of cloud computing provider

VMware

will likely rank as one of the year’s biggest mergers. 

Broadcom (ticker: AVGO), a chip maker, is in talks to buy VMware (VMW), according to Bloomberg, which said the transaction could be valued at more than $50 billion. The deal is expected to be announced as soon as Thursday, media reports said. Broadcom and VMware didn’t respond to questions seeking comment.

News of the potential sale caused VMware stock to soar about 25% to close at $119.43 Monday. Broadcom, meanwhile, shed 3% to $526.36. VMware currently has a $50.2 billion market capitalization, while the much bigger Broadcom has a $215 billion valuation.

Here are five important points about the potential deal.

First, VMware has been an acquisition target before. EMC acquired the company in 2004 for $625 million, taking it public in 2007 at $29 a share but keeping a majority of VMware after the initial public offering. In 2016,

Dell Technologies

(DELL) bought EMC for $67 billion. Dell spun off VMware in November 2021, delivering a special cash dividend of $11.5 billion to all VMware shareholders, including Dell stockholders, who received about $9.3 billion.

Second, Michael Dell, the founder of Dell Technologies, is expected to be a big winner if the deal goes through. He currently owns 40% of VMware, while Silver Lake, the private-equity firm, has about 10%, according to the data provider

FactSet
.
 

Three, the transaction could at least in part be a result of the recent market turmoil, which has hit technology stocks particularly hard. Before the potential Broadcom purchase was reported Monday, VMware’s stock had fallen about 43% from its 12-month high of $167.06, reached in October. Shares hit a year-to-date low of $91.53 on May 19, making them relatively cheap. The company is expected to report its first-quarter results on Thursday.

Fourth, Broadcom’s buy of VMware is expected to be valued at more than $50 billion. This would rank it as the second-largest U.S. merger announced this year, according to data from Dealogic. Only

Microsoft
’s
(MSFT) $75 billion purchase of Activision Blizzard (ATVI), announced in January, is larger. Elon Musk’s $41.3 billion offer for

Twitter

(TWTR) is in third place. 

Broadcom’s possible acquisition of VMware would rank third globally, behind Microsoft’s acquisition of Activision and

HDFC Bank
’s
$60 billion buy of Housing Development Finance, an Indian housing finance company, Dealogic said. 

Fifth, the deal highlights that even though valuations for tech stocks have dropped, they remain a bright spot in a deals market where overall transaction activity has diminished. So far this year through Monday, 3,463 U.S. deals valued at $814.8 billion had been announced, for a 13% year over year decline in the number of transactions, according to Dealogic.   

Worldwide, the number of mergers announced has fallen nearly 21% to 11,643 totaling $1.7 trillion. 

Of the top 10 biggest U.S. mergers so far in 2022, half are in tech, according to Refinitiv.

Write to Luisa Beltran at [email protected]