US chipmaker Broadcom is in talks to buy software giant VMware in a takeover that could bring the tech company’s largest shareholder, Michael Dell, a big cash windfall, according to people familiar with the matter.
A deal that could be worth more than $50 billion would transform the business-hungry semiconductor giant into a diversified technology company ranging from chips to cloud computing services.
VMware has long been recognized as one of the most important companies in the cloud computing industry. Its services are used by large companies to manage private and public cloud networks and data centers.
However, a decline in the company’s share price in recent years has prompted increased takeover interest. VMware closed Friday’s trading at $95.71, giving the company a market capitalization of $40 billion, about half its 2019 peak and 20 percent below where it started the year.
VMware and Broadcom declined to comment on the talks, which were first reported by Bloomberg.
A VMware deal would mean a big financial payoff for PC billionaire Dell, which acquired the company along with private equity firm Silver Lake in a $67 billion takeover of tech conglomerate EMC in 2016.
The deal was one of the largest in tech history and was funded largely by using VMware as collateral for more than $50 billion in loans.
After the acquisition, Dell retained a roughly 19 percent stake in VMware on the stock exchange and managed it separately from Dell Technologies, its personal computing and technical infrastructure company. Last November, Dell Technologies spun off its remaining 81 percent stake in VMware while withdrawing a $12 billion dividend from the company.
Dell, who chairs VMware, owns about 36 percent 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 runs Broadcom, has been on the hunt for a software deal for several years after his attempt to acquire chipmaker Qualcomm was blocked by then-US President Donald Trump in 2018 over national security concerns.
Tan is known as the arch-consolidator of the chip industry, but was partially forced to change his area of interest after it became clear that doing more business in the sector would face strong opposition from competitors, regulators and law enforcement agencies.
Broadcom held talks with cybersecurity group Symantec in 2019, but negotiations stalled after the sides failed to reach an agreement on the rating.
The potential Broadcom-VMware merger underscores the active market for big tech deals despite a sharp fall in valuations this year amid inflation fears and a US Federal Reserve rate hike.
Private equity firm Thoma Bravo agreed two big tech acquisitions this year, and activist investor Elliott Management has spearheaded the agreed privatizations of Nielsen and Citrix.
Microsoft is also working to complete the $75 billion acquisition of games company Activision Blizzard announced in January.
Additional reporting by Dave Lee in San Francisco