Broadcom analysts are mostly upbeat about the company’s plans to acquire VMware, which are said to be well underway.
Bloomberg News says that Broadcom (NASDAQ: AVGO) is in advanced talks to buy VMware (NYSE:VMW).
The news caused the price of VMW shares to rise by 19% before the market opened, while AVGO shares fell by more than 3%. On Friday, the market value of the cloud computing company was $40.3 billion. This could mean that a possible deal could easily be worth more than $50 billion if the usual premium is added.
According to information from Bloomberg, Michael Dell owns about 42% of VMW shares.
Here are what 4 Wall Street firms had to say about the report from Bloomberg.
“An acquisition of VMware would make strategic sense; it would fit with Broadcom’s goal of building a stronger software strategy for enterprise infrastructure,” – Wells Fargo
“Broadcom has said in public over the years that it wants to become a provider of enterprise infrastructure, which includes software.” We think VMware would be a good fit with this long-term plan because it is a strong fit with this long-term strategy. -KeyBanc
“VMware wouldn’t be “easy to swallow” because there are other things in our coverage that are easier to understand. At today’s price and the $8.50/shin cash, a typical 30% takeout premium would put the price between $125 and $135/sh if the $12.7B debt was taken on. In total, this would be worth about $62 billion, or 15 times the EV/CY23E FCF. – Piper Sandler
“We think an acquisition could be in line with AVGO’s previously stated strategy of 1) diversifying into mature enterprise software companies (like Brocade, CA, and Symantec Security); 2) reinvesting and focusing on core products, adding features, and raising prices; and 3) selling off non-strategic or higher-risk growth initiatives. In the past, these strategies have increased the core EBIT margins of acquired assets by a lot. For example, AVGO software‘s current EBIT margins are over 70%, which is much higher than the EBIT margins of any software company in the S&P 500 index. – The Bank of America
