VMware (VMW) shares surged higher Monday amid reports that the former cloud computing division of Dell Technologies (DELL) is a $50 billion takeover target of chipmaker Broadcom (AVGO).
Bloomberg, Reuters and the Wall Street Journal have each reported the Broadcom, which is looking to broaden its business interest from its chipmaking base under CEO Hock Tan, is in early talks with VMware for a deal that could be valued at as much as $50 billion. VMware was spun-off from Dell Technologies in 2019 but is still under the 40% control of billionaire tech mogul Michael Dell.
"Broadcom has a long track record of diversifying its business model away from semiconductors toward software, with the most recent acquisitions including Computer Associates and Symantec," said KeyBanc Capital Markets analyst Thomas Blakey, who carries an 'overweight' rating with a $150 price target on VMware.
"Broadcom has stated publicly over the years it's interested in becoming an enterprise infrastructure provider, including software, where we believe VMware would be a strong fit in line with this longstanding strategy," he added. "Michael Dell owns approximately 42% of VMW shares and Silver Lake owns approximately 11%, so with support from these two shareholders, the deal should be relatively easy to close, barring regulatory approval, which we don’t see as an issue."
VMware shares were marked 20.9% higher in early afternoon trading Monday to change hands at $115.75 each. Broadcom, meanwhile, fell 3.1% to $526.38 each and Dell gained 2.9% to $41.21 each.
VMware shares neared a five-year low last week after the U.S. Cybersecurity and Infrastructure Security Agency ordered federal agencies to update or remove its products following a discovery that hackers had found a back-door vulnerability that could put government computer systems at risk.
The group will report its fiscal first quarter earnings after the close of trading on Thursday, with analysts looking for a bottom line of $1.73 per share on revenues of $3.46 billion.
