U.S. chipmaker Broadcom Software Group is in talks to buy VMware, a takeover that could cause a huge loss for Michael Dale, the technology company’s largest shareholder, according to people familiar with the matter.
A deal, valued at more than 50 billion, will transform the contract-hungry semiconductor group into a diversified technology company, from chip to cloud computing services.
VMware has long been regarded as one of the most important companies in the cloud computing industry. Its services are used by large corporations to manage private and public cloud networks as well as data centers.
But interest in takeovers has increased in recent years as the company’s share price has fallen. VMware closed trading at $ 95.71 on Friday, giving the company a stock market capitalization of $ 40bn, almost half of its 2019 peak 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 provide a huge boost to personal computer billionaire Dell, who acquired the business in 2016 with private equity firm Silver Lake in a $ 67 billion acquisition of technology conglomerate EMC.
The deal was the largest in the history of technology and was originally funded using VMware as collateral for a loan of more than 50 50 billion.
Following the acquisition, Dell held about 19 percent of the public’s stake in VMware and operated it separately from Dell Technologies, its personal computer and technology infrastructure company. Last November, Dell Technologies closed its remaining 81 percent stake in VMware, withdrawing $ 12 billion in dividends from the company.
Dell, which chairs VMware, owns about 36 percent of the company’s outstanding shares, a share valued at about $ 15 billion as of the closing on Friday, according to Centio Data.
Hawk Tan, a Malaysian-American millionaire who heads Broadcom, has been seeking a software deal for several years after US President Donald Trump blocked an attempt to acquire chipmaker Qualcomm in 2018 over national security concerns.
Tan is known as the arch consolidator of the chip industry but was partially forced to change his area of interest when it became clear that any further deals in the sector would face strong opposition from competitors, regulators and implementers.
Broadcom held talks with cybersecurity group Symantec in 2019 but the talks broke down after the two sides failed to reach an agreement on the valuation.
The potential merger between Broadcom and VMware underscores the active market for large technology transactions, despite a sharp drop in valuations this year amid fears of inflation and the Federal Reserve raising interest rates.
Private equity firm Thoma Bravo has agreed to two major technical takeovers this year, and active investor Elliott Management has led the agreed privatization of Nielsen and Citrix.
Microsoft is also working to complete the $ 75 billion takeover of gaming company Activation Blizzard, which was announced in January.
Additional report by Dave Lee in San Francisco