VMware Reportedly Targeted for Acquisition by Broadcom

▤ Summary

We are maintaining our $175 fair value estimate for narrow-moat VMware (VMW) after Bloomberg reported that Broadcom is in discussions to purchase the company in a cash and stock deal. Still, it is likely that Broadcom would pay an acquisition price below our fair value estimate, so at this early stage, we would prefer to see VMware remain a stand-alone business. However, we believe VMwares long-term value is being pressured by macro factors spurring a technology sector selloff and the company incurring transitory revenue growth headwinds as it pivots to subscription and software as a service from a license model. We believe VMwares unique value is being the easy path to embracing any cloud environment, being able to support legacy compute and storage locations while developing new cloud-based applications, and helping organizations achieve the greatest utilization and security for their networking. Being a ubiquitous layer across on-premises, public clouds, and private clouds for networking, developers, and security teams makes VMwares technology essential for the long term, and we expect the subscription and SaaS journey to accelerate growth in the coming fiscal years.

▦ Linked Companies

Broadcom Inc.

$50M to $100M