Broadcom Inc. has initiated talks to acquire cloud-computing software firm VMware Inc. If things go as planned, the megahit deal will equip the chipmaker to penetrate a highly specialized area of software. People familiar with the matter have said that, although discussions are ongoing, there is no guarantee that they will lead to a purchase.
At the moment, VNware’s market valuation is around $40 billion. After taking into account a typical premium, the price of the deal would be higher. The terms and conditions of the deal are still unclear.
Broadcom eyes expansion beyond semiconductors
For quite some time now, Broadcom is eyeing an expansion beyond semiconductors. BroadAfter has cemented a solid market position in the enterprise software market after acquiring CT Technologies Inc. for $19 billion in 2018. In addition, the $10.7 billion acquisition of Symantec Corp’s security business in 2019 has also been instrumental in increasing its market share.
With these acquisitions, the Chief Executive of Broadcom, Hock Tan has managed to create a diversified business portfolio for the company. In addition, if the rumors about the acquisition of VMware are true, Broadcom will be able to get its teeth into a new software business, further accelerating its growth in the software industry.
Tan has eyes on new opportunities in the business software industry. Last year, there were reports suggesting that Broadcom is on the verge of acquiring SAS Institute Inc., in a deal worth between $15 billion and $20 billion. However, the deal did not go through when SAS’s founder rejected the deal at the last minute.
What can we expect from the acquisition if the deal goes through?
If Broadcom acquires VMware, it will be unexpected and unusual as it is not very clear what synergies there are between the two firms. In addition, they operate in completely different markets, with Broadcom primarily involved with the manufacturing and design of computer chips. On the other hand, VMware offers cloud-based and on-premise services and software solutions. Recently, it became an independent company breaking away from Dell Technologies.
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