Here’s Why Broadcom’s $61B VMware Deal is Extended
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Here’s Why Broadcom’s $61B VMware Deal is Extended

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The Broadcom-VMware deal faces regulatory scrutiny. VMware extended the deadline for the completion of the transaction to August 26.

A recent SEC filing revealed that Broadcom’s (NASDAQ:AVGO) planned $61 billion deal to acquire VMware (NYSE:VMW), an enterprise software company, has been extended to August 26. The extension comes as the transaction is yet to receive regulatory approval and faces scrutiny.

During the Q1 conference call, Broadcom’s CEO, Hock Tan, said that the chip maker continues to progress on various regulatory filings across the globe. Tan revealed that the deal received legal merger clearance in multiple countries, including Brazil, Canada, and South Africa. Furthermore, it has received foreign investment control clearance in France, Germany, Denmark, Italy, Austria, and New Zealand.  

Recently, Broadcom offered antitrust commitments to the European Commission to alleviate concerns regarding its VMware takeover. The EU watchdog extended the deadline to rule on the deal to July 17. 

The recent regulatory filing shows that if the transaction doesn’t close by August 26, both companies could extend the deadline to November 26.

Broadcom announced the acquisition of VMware last May. The deal valued VMware at $61 billion. Moreover, Broadcom stated that it would also assume VMware’s $8 billion net debt. Adding VMware is expected to expand Broadcom’s Software Group portfolio significantly. 

Broadcom has grown its market share in the chip industry organically (through diverse products and customer wins) as well as through multiple acquisitions. 

Commenting on the delayed regulatory approval, Piper Sandler analyst James Fish, in a note to investors dated April 27, said that Broadcom could divest its scrutinized hardware assets for high-margin VMware software if the deal faces regulatory pushback. 

However, the analyst lowered his price target on VMware stock to $125 from $142.50 as he seeks more clarity on the remedies around regulatory approval and values the company on a standalone basis. 

On the other hand, Broadcom continues to deliver solid growth and expects to deliver $8.7 billion in revenue in Q2. The company is scheduled to announce its second-quarter earnings on Thursday, June 1, 2023.

Is Broadcom Stock a Buy, Sell, or Hold?

Broadcom stock has received 14 Buy and three Hold recommendations for a Strong Buy consensus rating. At the same time, analysts’ average price target of $702.50 implies 2.97% upside potential from current levels.

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