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Chip maker Broadcom to buy cloud company VMware

Yahoo Finance Live anchors discuss shares for VMWare amid reports of a Broadcom acquisition.

Video Transcript

JARED BLIKRE: And reports over the weekend that semiconductor giant Broadcom is in talks to acquire cloud computing company, VMware. Shares in VMware jumped in the pre-market trading, while Broadcom fell slightly on the deal. It would rank among the largest tech acquisitions ever. It would be the latest for Broadcom, whose CEO, Hock E. Tan, is known for making such deals. A deal to buy fellow chipmaker, Qualcomm, was squashed by the Trump administration in 2018, and though they bought software company CA Technologies later that year and a division of Symantec in 2019.

And I got to tell you, our own editor-in-chief Andy Serwer on the ground in Davos-- we're going to have him in a little bit-- ran into Michael Dell. Now Michael Dell owns about 40% of VMware. He asked him for a comment. Michael Dell smiled and said no comment. Apparently, he's in a media blackout period, and he is not responding on this matter. All right, coming up--

JULIE HYMAN: Well, we can talk about this a little bit.

JARED BLIKRE: Oh, we can?

JULIE HYMAN: Yes.

JARED BLIKRE: Let's do it.

JULIE HYMAN: Let's do it. So it's interesting to me to see this potential takeover. And most of the reporting is saying this deal is not necessarily imminent, right, but that it could potentially happen. And as you alluded to, Hock Tan has been very acquisitive on the part of Broadcom in the past, but still, I think coming, as this report does, at a time when we have seen such a plunge in software stocks, you know, I think people are looking desperately for any sign of a bottom here. I don't know that this would be the sign or a sign of a bottom.

But nonetheless, it might give a little bit of hope here that, oh, if Broadcom sees value in a VMware after the drop that we've seen in VMware, maybe there's value in other portions of the market. One little caveat there, VMware's peak was actually much earlier than the rest of the enterprise software group. It peaked all the way back in May of 2019 and is down more than 50% since. Of course, that's before today's gain, so it hasn't seen the same exact trading pattern as many of its peers.

JARED BLIKRE: Yeah, well, I want to let you know, I'm controlling the YFi Interactive remotely, and I have our software heat map on right now. It's showing year to date losses. And I just want to show you how much these companies are off their 52-week highs. So Microsoft off about 25%. Well, I mean, let me just change this setting here. Microsoft off 27%, Adobe off 42%.

These stocks are on sale. We've had declines that we really haven't seen since the dotcom bubble bust. And I'm surprised we haven't seen more acquisitions and merger announcements year to date. But I think they're going to come because these markets, these companies are definitely on sale. And a lot of them are trying to pivot here.

Now, Broadcom is a chip maker traditionally. It's a very cyclical business. But they're trying to stabilize it. They want more software as a service return. So they're getting into that. And they think by this acquisition, they could get up to 50% of their revenue from services. So that kind of stabilizes things. I think it could be a long-term winner for them. We'll have to see how it shakes out, but a big, big deal on merger Monday.

JULIE HYMAN: Well, and I want to mention as well, Michael Dell, the role that he could play in this. Remember, he sort of orchestrated the combination of EMC with VMware, if you recall, several years ago. So there was sort of a three-way situation with Dell, EMC, VMware, the co-ownership, him owning a big chunk of VMware, as you alluded to. It's possible that Dell could push for a higher price-- or Michael Dell, that is. Not Dell the company, but Dell the person could push for a higher price here if this deal was going to go through.

So that's something, I think, to watch closely as well. We have seen an uptick in tech takeovers this year. It hasn't necessarily felt like it, but you have Microsoft for Activision. You have Citrix Systems, which is going to be going private. You have, of course, the Twitter deal.

JARED BLIKRE: Yeah. Well, we'll see if that happens.

JULIE HYMAN: If that ends up happening. But there has been a little bit of activity there. So I think if this happens, it will definitely add to that. I mean, this would be one of the biggest tech takeovers of all time, I think as you mentioned.

JARED BLIKRE: Yeha, and we're not really seeing any regulatory comments, or at least not-- I'm not hearing that this would face any regulatory scrutiny because they're really not trying to corner a market here. They're trying to diversify.