- VMware (NYSE:VMW) stock is surging on reports that Broadcom (NASDAQ:AVGO) is trying to acquire the cloud computing company
- A deal would help expand and grow Broadcom’s business beyond semiconductors
- However, Broadcom has seen its acquisitions fail in the past due to regulatory concerns
According to multiple reports, chipmaker Broadcom is in active talks with VMware to purchase it. While negotiations are progressing, no deal has bee announced. However, reports that the two companies are discussing a sale has been enough to push the share price of VMware sharply higher today.
Year to date, VMW stock is down about 1%. AVGO stock is down 4% today on the news.
What Happened With VMW Stock
The acquisition, should it happen, would help to diversify Broadcom’s business away from semiconductors and microchips and move it into enterprise software.
However, VMware could be a big pill for Broadcom to swallow. With a current market capitalization of $50 billion, VMware would be Broadcom’s biggest-ever acquisition. Broadcom tried to buy mobile chipmaker Qualcomm (NASDAQ:QCOM) for $103 billion in 2017. Former President Donald Trump ended up blocking the deal over antitrust concerns.
Michael Dell is VMware’s biggest investor with a 40% stake in the company as a result of Dell Technologies (NYSE:DELL) having spun out VMWare last year. Private equity firm Silver Lake is VMware’s second-largest shareholder.
Why It Matters
Buying VMware would fit with Broadcom’s strategy to grow through acquisitions. The San Jose, California-based company paid $18.9 billion to buy CA Technologies and $10.7 billion to purchase of Symantec’s enterprise security division in the last four years.
But again, a purchase of VMware would be the biggest-ever purchase for Broadcom. If the acquisition is successful, it will help to diversify Broadcom’s business and give it access to cloud computing and enterprise software, key technology areas.
Broadcom’s main focus is making chips that are used in products ranging from mobile phones to telecommunications network. VMware would provide Broadcom with access to data centers that are critical in cloud computing.
What’s Next for VMware
Whether a deal for Broadcom to acquire VMware actually happens or not, the prospect of such a deal is enough to send VMW stock surging today.
Investors should keep a close eye on developments in the coming days with the caveat that should an acquisition not be formally announced, shares of VMware are likely to come back down to earth.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.