Broadcom In Talks To Acquire VMware In Tech Merger Blockbuster: Report

Broadcom shares fell nearly 5 percent as a Bank of America analyst warned that the acquisition could come with “overhang” for shareholders.

Broadcom is reportedly in talks to buy cloud-software developer VMware, a deal that could be one of the largest tech mergers in history, according to Bloomberg, which first reported the news.

The discussions are ongoing and it’s not certain they will lead to an acquisition, Bloomberg reported, citing people familiar with the talks.

CRN reached out to both VMware and Broadcom for confirmation, but neither company had responded as of early Monday morning.

If a deal were to emerge it would represent a major step in Broadcom’s goal of expanding beyond its hardware stack roots and becoming a major player in IT infrastructure software - the strategy behind its previous acquisitions of Brocade Communications in 2017, CA Technologies in 2018 and Symantec Enterprise in 2019. An acquisition of VMware would expand Broadcom’s position in the cloud ecosystem where VMware is heavily engaged.

[RELATED: 5 Ways VMware Is ‘Evolving’ Partner Profitability In 2022]

On Monday morning, Broadcom’s stock price dropped almost 5 percent in pre-market trading.

VMware currently has a market cap of $40.3 billion, a fraction of the $221.7 billion at which Broadcom is valued. Its shares rose more than 20 percent in pre-market trading on Monday.

Bank Of America Bearish On Deal

Bank of America warned against the deal, with analyst Vivek Arya speculating that the acquisition would come with “overhang” for Broadcom shares as potential bumps in the road get worked out.

“If true, we believe an acquisition could potentially be in keeping with [Broadcom‘s] prior stated strategy of: diversifying into mature enterprise software companies (such as prior acquisitions of Brocade, CA and Symantec Security); reinvesting and focusing in core products, adding features and raising prices; and divesting non-strategic/higher-risk growth initiatives,” Arya wrote in a note to clients.

Dell Technologies shed its 81-percent stake in VMware in November 2021 with Dell shareholders receiving 0.44 of a share of VMware Class A common stock for each share of Dell Technologies common stock. They received a one-for-one exchange on Class B stocks.

Partners Concerned About Impact On VMware

Bob Venero, CEO of Fort Lauderdale, Fla.-based Microsoft partner Future Tech Enterprise – No. 100 on CRN’s 2021 Solution Provider 500, said he is concerned about the impact a Broadcom acquisition could have on VMware.

“It concerns me a bit if you look a the companies that Broadcom has acquired,” said Venero. “If you look at the companies they have acquired, they have struggled to grow. I hope they are not looking at VMware as a crown jewel cash cow to offset its other underperforming software assets.”

VMware has struggled over the last several years to find its place with regard to supporting channel and distribution partners, said Venero. “There have been changes at the helm, channel leadership and within the field,” he said. “My hope is they can figure out some consistency in their route to market, delivery and support of customers.”

If the VMware deal is finalized, Broadcom will need to “move quickly to invest in their processes, procedures and communications to both the channel and customers,” said Venero. “Right now they are struggling with their message to the channel and customers. There have been a lot of shifts in terms of support for both the channel and customers. There are a lot of positions that have not been filled within their commercial, government and education businesses.”

VMware is at a crossroads with regard to its vision and strategy for future sales growth, said Venero. “They are definitely in a position where they really have to hunker down,” he said. “They are the de facto virtualization standard. But in order to remain that way they need to be able to drive their growth over the next three to five years with a strong message to partners and customers.”

Future Tech’s VMware sales are up triple digits in the last several years based on strong enterprise licensing agreement (ELA) sales, said Venero. “We are providing a lof of support and customer value around ELAs,” he said. “Future Tech is the common thread for customers looking for help with VMware solutions.”

Rough Stretch For VMware Security

Recently, VMware has been buffeted by bad security news recently as hackers have used unpatched flaws to exploit the software, which is installed throughout the IT ecosystem. Last week, the federal government issued a warning, and called out five VMware products that contributed to unsecure networks.

One of the hacks, CVE-2022-22954, reached a 9.8 out of 10 on the Common Vulnerability Scoring System rating that ranks the severity of exploits. That is considered a “critical” threat. The CVSS score considers several aspects of the threat such as its complexity, the privileges required to carry it out – what if any exploit is required to carry it out at all – and what attackers can do once they are inside the environment.