The Broadcom Limited company logo is shown outside one of their office complexes in Irvine, California, U.S., March 4, 2021.MIKE BLAKE/Reuters
Broadcom Inc. is in talks to acquire cloud service provider VMware Inc. in a US$60-billion deal which would further diversify the chip manufacturer’s business into enterprise software, people familiar with the matter said.
Broadcom is in discussions to pay about US$140 per share in cash and stock for VMware, the sources said. That is a 46-per-cent premium to the value of VMware’s shares on Friday.
If the negotiations prove successful, a deal could be announced as early as Thursday, when VMware is scheduled to report quarterly earnings, the sources added.
Bloomberg News first reported the deal talks on Sunday, while the Wall Street Journal first reported on the acquisition terms on Monday. Broadcom and VMware did not immediately respond to Reuters’s requests for comment.
VMware shares ended trading on Monday up 25 per cent at US$119.43, while Broadcom shares closed down 3 per cent at US$526.36.
Broadcom makes an array of chips used in products ranging from mobile phones to telecom networks. The acquisition of VMware would give it access to data centres where the latter’s technology is a mainstay for cloud customers.
“We believe 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 analysts said.
Broadcom chief executive officer Hock Tan, a Malaysian-American billionaire, has been a prolific deal maker since taking the helm of what was a small chip maker in 2006. Regular acquisitions helped turn the business into a behemoth worth more than US$200-billion.
Mr. Tan’s most audacious move was to try to buy mobile chip maker Qualcomm for US$103-billion in 2017. That was blocked by U.S. president Donald Trump over concerns that it would give China the upper hand in mobile communications.
After the failed effort, Broadcom moved its headquarters to San Jose from Singapore. It subsequently beefed up its software offering by buying CA Technologies for US$18.9-billion and Symantec’s security division for US$10.7-billion.
“A VMware acquisition would just about triple the size of Broadcom’s software segment, as well as bring the overall software mix close to 50% for the combined company,” Bernstein analysts wrote in a note to clients.
Michael Dell is VMware’s biggest investor with a 40-per-cent stake after the company was spun out of Dell Technologies last year. Private equity firm Silver Lake, which has previously invested in Broadcom, is VMware’s second largest shareholder with a 10-per-cent stake.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.