As expected, the Broadcom-VMware deal is a go. The chip giant plans to acquire the virtualization software company for $61 billion in cash and stock, along with $8 billion in VMware debt.
It’s not a cheap transaction, but thanks to a “go-shop” provision that gives VMware 40 days to “search, receive, evaluate and potentially negotiate with parties offering alternative proposals,” there is market speculation that another bidder could enter the fray .
After reviewing analysts’ notes on the deal, Ron and Alex ended on either side as to whether a higher price or another bidder would make sense. Ron believes the company’s value is higher than recent financial results might suggest, while Alex believes the company is underperforming to earn a higher price.
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We’ve long speculated who might buy VMware, and after Dell spun the company, Marketingwithanoy listed Amazon, Alphabet, Oracle, Microsoft, and IBM as potential buyers. The fact that we didn’t foresee Broadcom as a potential buyer underscores our view that we’re not entirely sure it’s the right buyer for VMware.
So let’s talk about the pros and cons of the case, ask what VMware is worth and how it could have value over recent quarterly results. Ron has a point!
With $61 billion on the table, it’s hard to imagine anyone paying more, and research firm Bernstein agrees with the perspective. Before we put the idea to bed, though, it’s worth taking a moment to consider the value of VMware.
VMware’s value goes beyond what the balance sheet or income statement tells us right now. While the company may not have had a perfect first quarter, it has certain skills that could be a good fit for all major cloud infrastructure providers.
In fact, cloud infrastructure-as-a-service only exists today because the early crew of VMware invented virtualization on a large scale in the early 2000s. Until then, people were using servers, and if a server was underused, well, too bad. Virtualization allows you to split a computer into multiple virtual machines, paving the way for cloud computing as we know it today.
While cloud computing has changed somewhat since its early days, virtualization remains a core tenet of the market. Just imagine if one of three or four cloud vendors — think Amazon, Microsoft, Google, or even IBM (though this deal is a bit rich for its blood) — were to bring VMware into its lap.
VMware, of course, brings more than virtualization. Over the years, it has taken on several opportunities by acquiring companies such as Heptio, a containerization startup launched by Craig McLuckie and Joe Beda, two of the people who helped create Kubernetes.