Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Wall Street Positive on Broadcom's Potential $60 Billion Deal for VMWare

Stock Markets May 24, 2022 06:16AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Wall Street Positive on Broadcom's (AVGO) Potential $60 Billion Deal for VMWare (VMW)
 
VMW
+4.00%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
AVGO
+5.05%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Senad Karaahmetovic

Broadcom (NASDAQ:AVGO) is negotiating to acquire VMware (NYSE:VMW) for $60 billion, a deal that would mark one of the biggest buyouts of the year, according to Wall Street Journal.

Broadcom and VMware are currently in talks and could soon announce a cash-and-stock deal that values the cloud computing company at around $140 per share on Thursday, the WSJ reports. However, the price could change as the deal is not yet finalized.

Broadcom is looking to take around $40 billion in debt from multiple banks to fund the deal, according to the report.

Broadcom’s negotiations with VMware come just a month after Elon Musk agreed to purchase Twitter (NYSE:TWTR) for $44 billion, suggesting that there is still space for major deals despite high market volatility.

The recent market drawdowns have significantly slashed company valuations, making the acquisition targets more affordable. Furthermore, companies that are open to selling are also increasingly interested in accepting stock as a currency in a bid to make a profit when the stock prices recover.

On the other hand, the volume of merger and acquisition (M&A) deals remains considerably lower compared to last year. Since the start of 2022, U.S. companies have struck $789.5 billion worth of mergers so far this year, down 31% from the same period last year, due to higher economic uncertainty and market volatility.

The IPO activity has significantly slowed down as well this year as companies that are looking to go public are waiting for a more peaceful market environment.

If the final price of the deal remains at $140 per share, it would mark a premium of almost 50% to where VMware’s stock closed Friday, though still significantly below the $200+ it has hit twice in 2019.

3 Wall Street analysts have weighed in to discuss the potential $60 billion deal.

Morgan Stanley’s Keith Weiss: “The company [AVGO] has a history of buying inexpensive and cash flow generative businesses in both semiconductors, and more recently software, to support Broadcom’s overall earnings and cash flow profile. The company has a track record of successful acquisitions in the semiconductor space by reducing costs and extracting additional cash flow from acquired companies. If VMware is acquired, we see cost reduction and improving operating efficiency as a potential outcome.”

New Street Research’s Pierre Ferragu: “As an archetypical maturing software business, VMWare combine strong fundamentals (high user stickiness, crazy-high returns and incremental returns, innovation-driven pricing power) and very attractive fundamental valuation (10% forward FCF yield on Friday’s close, for an 8-12% p.a. FCF growth potential… who would not want that type of return profile, if it were low risk, as we think?)”

Mizuho’s Vijay Rakesh: “AVGO could triple size of Software Revs from ~$7B to $21B, Software could go from 23% of rev to ~45-48%. VMW would add Infrastructure software and a multi-cloud strategy consisting of: 1) a cloud-native application platform (inclusive of Tanzu, Kubernetes services, etc.); 2) cloud-based infrastructure (VMware Cloud, vSphere, and vSAN); and 3) Secure Edge & Anywhere Workspace (consists of WorkspaceONE, Horizon, SASE, Telco Cloud Platform), all bound by a common layer for management, security, and networking capabilities. We believe there is minimal overlap with AVGO's prior security focused Symantec and enterprise software CA acquisitions.”

Wall Street Positive on Broadcom's Potential $60 Billion Deal for VMWare
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email