The American chip maker Broadcom is in talks to buy the software group VMware, in a takeover that could generate a huge downturn for the technology company’s largest shareholder Michael Dell, according to people who are informed about the case.
An agreement, which could be worth more than $ 50 billion, will transform the agreement-hungry semiconductor group into a diversified technology company ranging from chips to cloud services.
VMware has long been considered one of the most important companies in the cloud industry. The services are used by large companies to manage private and public cloud networks as well as data centers.
However, a decline in the company̵[ads1]7;s share price in recent years has led to increased acquisition interest. VMware closed trading on Friday at $ 95.71, giving the company a market capitalization of $ 40 billion, down about half from the top in 2019 and 20 percent 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 pay off financially for PC billionaire Dell, which bought the business in 2016 with private equity firm Silver Lake in a $ 67 billion takeover of technology conglomerate EMC.
The deal was one of the largest in technology history and was largely funded by using VMware as collateral for more than $ 50 billion in borrowing.
Following the acquisition, Dell publicly held a 19 percent stake in VMware publicly and managed it separately from Dell Technologies, its personal computer and technology infrastructure company. In November last year, Dell Technologies divested its remaining 81 percent stake in VMware, while withdrawing a $ 12 billion dividend from the company.
Dell, which is chairman of VMware, owns about 36 percent of the company’s outstanding shares, a stake worth about $ 15 billion at the close of Friday, according to Sentieo-data.
Hock Tan, the Malaysian-American billionaire who heads Broadcom, has been looking for a software deal for several years after his attempt to buy chipmaker Qualcomm was blocked in 2018 by then-US President Donald Trump due to national security concerns.
Tan is known as the chip industry’s arch consolidator, but was partially forced to change its area of interest after it became clear that further agreements in the sector would face strong opposition from competitors, regulators and enforcers.
Broadcom had talks with the cyber security group Symantec in 2019, but the negotiations fell apart after the parties failed to reach an agreement on valuation.
The potential merger between Broadcom and VMware underscores the active market for major technology deals despite a sharp drop in valuations this year amid fears of inflation and the Federal Reserve raising interest rates.
The private equity company Thoma Bravo has agreed on two major technology acquisitions this year, and activist investor Elliott Management has led the agreed privatizations of Nielsen and Citrix.
Microsoft is also working to complete its $ 75 billion acquisition of gaming company Activision Blizzard, which was announced in January.
Additional reporting by Dave Lee in San Francisco