Broadcom reportedly working to acquire VMware

Silicon Valley chipmaker Broadcom is working on a deal to acquire cloud service and virtualization provider VMware, although an agreement is not expected to be imminent, according to published reports.

VMware’s market cap sits around $40 billion, although no proposed purchase price has been disclosed as yet. If a deal is eventually reached, it would be the latest in a long line of acquisitions for Broadcom, which has built itself up, in large part, on the basis of multiple high-profile buyouts.

The company acquired network switching manufacturer Brocade in November 2016 for nearly $6 billion, development and security software firm CA Technologies in November 2018 for $19 billion, and the enterprise security division of Symantec in August 2019 for more than $10 billion.

Broadcom’s most aggressive acquisition, however, was nixed by the Trump administration in 2017 over purported national security issues, when it tried to buy fellow chipmaker Qualcomm in a transaction that would have cost a whopping $117 billion.

Shares of Broadcom stock dipped slightly in premarket trading, while those of VMware climbed — the latter was up about 18% Monday morning to $113, while the former is down about 5% to $518.

Broadcom may have to offer a substantial premium on VMware’s current share price in order to force a deal, according to an analysis by Bloomberg, which noted that 40% of VMware stock is still owned by Michael Dell, the head of that company’s former corporate parent, Dell Technologies, after the company was spun out from Dell in November 2021 — and other potential buyers may emerge now that the word is out that VMware could be sold.

What’s more, the overall valuation of VMware, given the average premium over the market stock price paid to software companies in the past several years, could make it one of the most expensive purchases in history, said Bloomberg, the news outlet that first reported the acquisition talks.

VMware’s board rejected a so-called “mini-tender” offer from a private equity firm, TRC Capital, in January of this year, a deal that would have sold about 0.24% of the company’s outstanding stock to TRC at a sub-market rate. The idea behind these offers, according to VMware, is to avoid US Security and Exchange Commission disclosure requirements that would be triggered by tender offers for 5% or more of a company’s public stock.