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Broadcom Reportedly in Talks to Snap Up VMWare

Appetite for new companies has positioned Broadcom as a chip company with almost every possible tool at its disposal.

Broadcom Chief Executive Hock Tan is no stranger to doing deals.

Over the last nine years Broadcom  (AVGO) - Get Broadcom Inc. Report has attempted to buy or has bought major tech players in an ongoing shopping spree.

That appetite for new companies had positioned Broadcom into a chip company with almost every possible tool at its disposable.

Past buys have included network-gear maker Brocade for $5.5 billion; CA for $18.9 billion; component and optical chip manufacturer CyOptics for $400 million; Emulex for $764 million; chipmaker LSI for $6.6 billion; and Symantec  (SYMC) - Get Symantec Corporation Report for $10.7 billion.

Not to mention that Broadcom itself was acquired by Avago for $37 billion in 2015.

That marriage created a chipmaking behemoth and set a new stage for competition in the sector.

All that shopping has come with major upsides.

Those have included a rising share price and some insulation from market whipsaws, which have sent some tech companies skidding but left chipmakers relatively stable.

On the other hand, the urge to merge has also landed the company in hot water.

Several would-be deals were scuttled due to antitrust concern, and Broadcom has remained squarely in the sights of regulators, who are wary of how widely the company is attempting reach.

Failures have included a $103 billion proposal for Qualcomm  (QCOM) - Get QUALCOMM Incorporated Report and talks to buy SAS Institute. 

Now, CEO Tan appears to be on the hunt again.

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VMWare Gets a New (and Eager) Suitor 

Cloud software pioneer VMWare  (VMW) - Get VMware, Inc. Report is now in talks with Broadcom to be acquired, multiple reports said on May 24.

The two companies may announce a merger as early as this week, Bloomberg reports. It would be a stock-and-cash deal, people familiar with the matter told the news service.

Neither company immediately responded to requests for comment from TheStreet.

The Wall Street Journal reported that the bid could be around $140 a share, or $60 billion.

An acquisition at that price implies a price-to-earnings multiple of at least 17, and that’s consistent with recent software deals, according to Bloomberg Intelligence analyst Woo Jin Ho.

Does a Deal Make Sense? 

A Broadcom/VMWare deal has been in the cards for a while, as market watchers have wondered whether the companies might be able to even out each other's exposed weaknesses.

That could mean taking Broadcom into software, and giving VMWare some protection of its $50.3 billion valuation in a now-crowded cloud market.

“Investors have been increasingly focused on Broadcom’s appetite for another strategic or platform enterprise software acquisition — especially given the recent compression in software valuation,” Wells Fargo analysts wrote after the Bloomberg report. 

“An acquisition of VMware would be considered as making strategic sense; consistent with Broadcom’s focus on building out a deepening enterprise infrastructure software strategy.”

VMWare may also have other suitors waiting in the wings, as the market has shown major interest in massive tech takeovers.

"Takeovers of technology companies globally are up 46% this year to $263 billion, according to data compiled by Bloomberg," the news service reports.