Broadcom Reportedly in Advanced Talks to Acquire VMware, Analysts Mostly Positive

2022.05.23 13:17

Broadcom (AVGO) Reportedly in Advanced Talks to Acquire VMWare (VMW), Analysts Mostly Positive

By Senad Karaahmetovic

Broadcom (NASDAQ:AVGO) is in advanced talks to acquire VMware (NYSE:VMW), according to Bloomberg News.

VMW stock price jumped 19% premarket on this news while AVGO shares slipped over 3%. The cloud computing company had a $40.3 billion market cap on Friday, which could mean that a potential deal could easily eclipse the $50 billion handle, assuming the typical premium.

According to Bloomberg data, Michael Dell owns roughly 42% of VMW shares.

Here are comments from 4 Wall Street firms in response to Bloomberg’s report.

• “An acquisition of VMware would be considered as making strategic sense; consistent with Broadcom’s focus on building out a deepening enterprise infrastructure software strategy.” – Wells Fargo
• “Broadcom has stated publicly over the years it’s interested in becoming an enterprise infrastructure provider, including software, where we believe VMware would be a strong fit in line with this longstanding strategy.” – KeyBanc
• “VMware would not be “easy to swallow” as there are others that are more easily digested in our coverage. At today’s current price and the ~$8.50/sh in cash, a typical ~30% takeout premium would suggest between $125-$135/sh with an assumption of the $12.7B debt. In all, this would equate to about a $62B EV or ~15x EV/CY23E FCF.” – Piper Sandler
• “We believe an acquisition could potentially be in keeping with AVGO’s prior stated strategy of: 1) diversifying into mature enterprise software companies (such as prior acquisitions of Brocade, CA and Symantec Security); 2) reinvesting and focusing in core products, adding features and raising prices; and 3) divesting non-strategic/higher-risk growth initiatives. These strategies have historically lifted core EBIT margins of acquired assets significantly (current AVGO software EBIT margins >70% which is well above the EBIT margins of every software company in the S&P 500 index).” – Bank of America

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