Broadcom in talks to acquire VMware, reports
VMware's share price has fallen sharply in recent months, from a high of $167 in October 2021 to about $95 on Friday
US chipmaker Broadcom is in talks to buy enterprise cloud service provider VMware, according to multiple reports.
Bloomberg was the first to report about the ongoing discussions between the two companies on Sunday, although it did not mention a purchase price.
Bloomberg cited anonymous sources familiar with the matter as saying that discussion were still ongoing, adding that there was no certainty they would result in a purchase.
The market capitalisation of Broadcom was over $222 billion (£176 billion) on Friday, whilst VMware was valued at approximately $40.3 billion (£32 billion).
Assuming there will be the usual premium, the possible purchase price will be greater.
The Financial Times speculates that the potential value of the transaction could exceed $50 billion (£39.7 billion).
The acquisition would turn the deal-hungry semiconductor firm into a diverse technology corporation offering a wide range of products and services, from chips to cloud computing.
Broadcom's last major acquisition was in 2019, when it purchased Symantec's enterprise security business for nearly $11 billion (£8.7 billion).
In 2016, the company spent $5.9 billion (£4.7 billion) to acquire Brocade Communications, and in 2018, it spent around $18 billion (£14.3 billion) to acquire CA.
VMware has long been regarded as one of the most significant businesses operating in the cloud computing industry. Large organisations make use of its services in order to manage private and public cloud networks, as well as data centres.
But in recent years, the company's share price has been on a downward trend, which has led to increased takeover interest.
According to Refinitiv stats, personal computer industry billionaire Michael Dell is VMware's biggest shareholder, with a 40% stake in the company.
Dell, together with private equity company Silver Lake, spent $67 billion in 2016 to acquire VMware as part of a larger transaction to purchase the technology conglomerate EMC.
The transaction was one of the biggest in the history of the technology industry, and was largely financed by using VMware as collateral for more than $50 billion in loans.
After the purchase, Dell kept a 19% stake in VMware public and operated it independently from Dell Technologies, his personal computer and technology infrastructure firm.
Last November, Dell Technologies completed the spinoff of its remaining 81% stake in VMware, while pulling a $12 billion dividend out of the company.
VMware has seen a sharp decline in its share price over the last several months, falling from a high of $167 in October 2021 to about $95 on Friday.
When Broadcom released its fiscal first-quarter earnings results in March, the company exceeded the expectations of Wall Street. On June 2nd, Broadcom is expected to release its financial results for the second quarter.
The proposed merger between Broadcom and VMware highlights the continued appetite for major technology deals, despite a dramatic decline in values this year due to concerns over inflation and the US Federal Reserve increasing interest rates.
Microsoft in January announced plans to acquire Activision Blizzard, the publisher of Call of Duty and the World of Warcraft, in a $68.7 billion (about £50.5 billion) all-cash deal.
Once the deal closes, Microsoft says it will be the "third-largest gaming company by revenue, behind Tencent and Sony".