US chip maker Broadcom is in talks to acquire cloud infrastructure software company VMware in a deal that could be worth up to $50 billion (£40bn), according to several reports citing unnamed people briefed on the matter.

Negotiations are ongoing and a deal is not imminent, reports said.

The potential deal, first reported by Bloomberg late on Sunday, would represent a massive windfall for VMware’s largest shareholder, Michael Dell, who retained a large stake in the firm after spinning it out from Dell Technologies last year.

It would also turn Broadcom into a diversified technology company with holdings ranging from microprocessors to cloud infrastructure software.

Takeover bid

VMware is considered one of the most important companies in the cloud computing industry, but a drop in its stock price has fuelled acquisition interest.

Its shares closed trading on Friday at $95.71, about half their 2019 peak value and 20 percent down from the beginning of the year. Based on Friday’s figures the company’s market capitalisation was $40.3bn.

In the meantime Broadcom, known for its strategy of aggressive acquisitions and consolidation, has increasingly diversified into software after its attempt to buy Qualcomm in 2018 was blocked by the US administration on national security grounds.

Since then Broadcom has acquired CA Technologies for $18.9bn and Symantec’s security division for $10.7bn – although it quickly sold off the Symantec unit to Accenture.

Deal activity

Michael Dell acquired VMware with Dell Technologies’ $67bn takeover of EMC in 2016, along with private equity firm Silver Lake.

The deal, one of the biggest in tech industry history, was largely financed by using VMware as collateral for more than $50bn in loans.

After the acquisition Dell kept about 19 percent of VMware public, and spun out the remaining 81 percent last year.

Michael Dell owns about 36 percent of VMware’s outstanding shares, worth about $15bn at Friday’s close, according to data from Sentieo. Silver Lake is VMware’s second-biggest shareholder with a 10 percent stake.

The potential Broadcom deal highlights the active interest in large tech deals this year, in spite of broader market turmoil, including Microsoft’s $68.7bn takeover of gaming firm Activision Blizzard, announced in January.

Matthew Broersma

Matt Broersma is a long standing tech freelance, who has worked for Ziff-Davis, ZDnet and other leading publications

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