Chipmaker Broadcom in talks to buy VMware for up to €47bn

Takeover by chip industry’s arch-consolidator would mean a windfall for Michael Dell

US chipmaker Broadcom is in talks to buy software group VMware, in a takeover that could generate a huge windfall for the technology company’s largest shareholder Michael Dell, according to people briefed about the matter.

A deal, which could be worth more than $50 billion (€46.9 billion), would transform the deal-hungry semiconductor group into a diversified tech company ranging from chips to cloud computing services.

VMware has long been considered one of the cloud computing industry’s most important companies. Its services are used by large corporations to manage private and public cloud networks as well as data centres.

But a decline in the company’s share price in recent years has led to increased takeover interest. VMware closed trading on Friday at $95.71, giving the company a stock market capitalisation of $40 billion, down about half from its 2019 peak and 20 per cent below where it traded at the beginning of the year.

VMware and Broadcom declined to comment on the talks, which were first reported by Bloomberg.

A VMware deal would provide a big financial payout for personal computer billionaire Michael Dell, who acquired the business in 2016 alongside private equity firm Silver Lake in a $67 billion takeover of technology conglomerate EMC.

The deal was one the largest in tech history and was largely financed by using VMware as collateral for more than $50 billion in borrowing.

Spinning off

After the acquisition, Dell kept a roughly 19 per cent stake in VMware public and managed it separately from Dell Technologies, his personal computer and tech infrastructure company. Last November, Dell Technologies spun off its remaining 81 per cent stake in VMware, while pulling a $12 billion dividend out of the company.

Mr Dell, who is chairman of VMware, owns about 36 per cent of the company’s outstanding shares, a stake worth about $15 billion as of Friday’s close, according to Sentieo data.

Hock Tan, the Malaysian-American billionaire who leads Broadcom, has been on a hunt for a software deal for several years after his attempt to acquire chipmaker Qualcomm was blocked in 2018 by then US president Donald Trump over national security concerns.

Mr Tan is known as the chip industry’s arch consolidator but was partly forced to change his area of interest after it became clear that any further deals in the sector would face strong opposition from competitors, regulators and enforcers.

Broadcom held talks with cyber security group Symantec in 2019 but the negotiations fell apart after the sides were unable to reach an agreement on valuation.

The potential merger between Broadcom and VMware underscores the active market for large technology deals despite a sharp decline in valuations this year amid fears over inflation and the Federal Reserve raising interest rates.

Private-equity firm Thoma Bravo has agreed two large tech takeovers this year and activist investor Elliott Management has led the agreed privatisations of Nielsen and Citrix.

Microsoft is also working to complete its $75 billion takeover of gaming company Activision Blizzard, which was announced in January. – Copyright The Financial Times Limited 2022