Broadcom Inc. could announce an agreement to acquire cloud-computing company VMware Inc. as soon as this week, according to people familiar with the matter, setting up a blockbuster tech deal that would vault the chipmaker into a highly specialized area of software.
The offer is likely to be mostly in the form of stock but would include a large cash element, said one of the people, who asked not to be identified because the matter isn’t public. Financing for the transaction is in place, the person added.
VMware, backed by billionaire Michael Dell, has a market valuation of about $50.3 billion. The takeover discussions are ongoing, and there’s also still no guarantee that the talks will lead to an agreement. Representatives for the two companies didn’t immediately respond to requests for comment.
The Wall Street Journal reported that the bid could be around $140 a share, or $60 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.
Shares in VMware rose 25 percent to $119.43 on Monday in New York after Bloomberg News first reported that the talks were underway. That was the biggest one-day gain since 2007. Broadcom, which has a valuation of about $215 billion, fell 3.1 percent to $526.36.
A deal for VMware would rank among the biggest-ever acquisitions of a technology company. The industry has been one of the bright spots for bankers in recent months, even as the overall pace of dealmaking slows from 2021’s record pace.
Takeovers of technology companies globally are up 46 percent this year to $263 billion, according to data compiled by Bloomberg. The tally was buoyed by Microsoft Corp.’s agreement in January 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 run of acquisitions for Broadcom Chief Executive Officer 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 buying CA Technologies in 2018 and Symantec Corp.’s enterprise security business in 2019.
Broadcom makes a wide range of electronics, with its products going into everything from the iPhone to industrial equipment. Data centers in particular are a vital source of growth, and bulking up on software gives the company more ways to target that market. VMware makes virtual software that allows users to access systems remotely. The companies don’t have overlapping products but are often used together to manage data centers.
Broadcom was previously in talks to acquire SAS Institute Inc., a closely held software company valued at $15 billion to $20 billion. But those discussions ended last year without a deal.
VMware, founded in 1998, is a pioneering Silicon Valley company that has already changed hands more than once. It invented so-called virtualization software, which consolidated applications and workloads on a smaller number of server computers by using each server to handle more than one program.
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