VMware & Broadcom stocks soar on acquisition plans: What you must know

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VMware & Broadcom stocks soar on acquisition plans: What you must know

VMware & Broadcom stocks soar on acquisition plans: What you must know
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Highlights

  • Broadcom (NASDAQ: AVGO, AVGO: US) has announced its plans to buy VMware (NYSE: VMW, VMW: US).
  • In addition, Broadcom and VMware also delivered their latest quarter results on May 26.
  • According to the deal, the chipmaker will also assume US$ 8 billion of the software company's net debt.

VMware Inc (NYSE: VMW, VMW: US) and Broadcom Inc (NASDAQ: AVGO, AVGO: US) have been trending higher on the stock markets after they announced their acquisition agreement on Thursday, May 26. In addition, Broadcom and VMware have also delivered their latest quarter results.

Stocks of VMware shot up by nearly three per cent to US$ 124.04 at 10:47 AM EST on May 26, while AVGO stock zoomed by over three per cent to US$ 548.53 at the time of writing.

Broadcom, a semiconductor technology company, has said that it is set to acquire VMware, a multi-cloud services provider, for about US$ 61 billion in a cash-and-stock transaction. According to the deal, the chipmaker will also assume US$ 8 billion of the software company's net debt.

What should you know about the VMware-Broadcom deal?

Upon closing the acquisition, the semiconductor company is set to rebrand and operate as VMware, the company said. A US$ 21-billion market cap company, Broadcom said it will also incorporate its existing information and technology (IT) infrastructure as a part of its expanded VMware portfolio.

As per the agreement, VMware shareholders will have an option to receive a cash payment of either USS$ 142.50 or 0.252 shares of Broadcom for each VMW share.

In addition, Broadcom projects to continue its current dividend policy of returning 50 per cent of its previous year's free cash flows (FCF) to shareholders.

VMware & Broadcom stocks soar acquisition plans: What you must know

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VMware Inc (NYSE: VMW, VMW: US)

VMware holds a market capitalization of US$ 51 billion. The technology company reported a revenue of US$ 3.09 billion in Q1 FY2023, three per cent higher than Q1 FY2022. The company pointed out that continued momentum in subscription and Software-as-a-Service (SaaS) business accounted for 29 per cent of total revenue in the latest quarter.

The tech player posted a net profit of US$ 242 million (on GAAP basis) in Q1 FY2023 compared to US$ 425 million in Q1 FY2022.

VMware also expanded its partnership with Google Cloud to expedite application modernization and cloud transformation for its customers.

VMW stock rose by over 30 per cent in one week. As per Refinitiv findings, VMW seems to have gained attention on the stock market as its Relative Strength Index (RSI) value boosted to 67.28 on May 26.

Broadcom Inc (NASDAQ: AVGO, AVGO: US)

Broadcom saw its revenue climb 23 per cent year-over-year (YoY) to US$ 8.1 billion in Q2 FY2022. The California-headquartered semiconductor company reported increased net earnings of US$ 2.59 billion in the latest quarter compared to US$ 1.49 billion a year earlier.

Broadcom also reported a YoY surge of US$ 715 million in its FCF to US$ 4.15 billion in Q2 FY2022. In addition, the large-cap company also announced a quarterly dividend of US$ 4.10 per share, scheduled for June 30.

Also, Broadcom anticipates its revenue to reach around US$ 8.4 billion and adjusted EBITDA of about 63.5 per cent of expected revenue in Q3 FY2022.

AVGO stock swelled by roughly 20 per cent in 52 weeks. As per Refinitiv, its RSI value was 48.72 on May 26.

Also read: RCK, SVA, AFE, AMC & OYL: 5 TSXV smallcap stocks to watch in Q3 2022

Bottomline

The acquisition deal between VMware Inc and Broadcom Inc is subject to regulatory and VMware shareholders' approvals and additional customary conditions. According to the official statement, this transaction is anticipated to close in fiscal 2023 (as per Broadcom books).

Please note, the above content constitutes a very preliminary observation based on the industry, and is of limited scope without any in-depth fundamental valuation or technical analysis. Any interest in stocks or sectors should be thoroughly evaluated taking into consideration the associated risks. 

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