Dell, the kingmaker in Broadcom, Vmware deal

NEW YORK: Technology entrepreneur Michael Dell once again finds himself at the centre of one of his industry’s biggest deals.

Dell holds a roughly Us$16.2bil (Rm71.12bil) stake in Vmware Inc, meaning he’s likely to have an important say in a potential takeover of the cloud-computing provider by chip maker Broadcom Inc.

The two companies are in talks about a transaction, Bloomberg News reported on Sunday.

While is not known is what price Broadcom is willing to pay for Vmware, which has a market value of Us$40bil (Rm175.6bil), it may have to offer a sizable premium to get the company’s shareholders on board.

Vmware’s market capitalisation touched Us$70bil (Rm307.3bil) as recently as October, when Dell’s interest would have been worth some Us$28bil (Rm123bil).

“Valuation and Michael Dell’s 40% stake could be hurdles to Broadcom’s reported M&A interest in Vmware,” said Bloomberg Intelligence analyst Woo Jin Ho. “Deal synergies exist, but we believe Vmware may seek a valuation prior to the recent market drop.”

Buyers offered an average 34.1% premium in takeovers of software companies announced over the past five years, data compiled by Bloomberg showed. Assuming Broadcom offered a similar add-on, that would still only value Vmware at around Us$54bil (Rm237.6bil) and it’s unclear whether that would be enough for Dell.

The founder of Dell Technologies Inc has a net worth of Us$44.2bil (Rm194bil), according to the Bloomberg Billionaires Index and isn’t shy about getting into a corporate fight.

He took his eponymous PC maker private in 2013 in a Us$24.9bil (Rm109.3bil) deal in the face of fierce opposition from renowned activist investor Carl Icahn. Around three years later, he led a Us$67bil (Rm294bil) acquisition of EMC Corp in what remains one of the biggest tech deals in history.

Then, in 2018, he won a battle to buy out shareholders of stock that tracked Dell’s stake in Vmware – created after the EMC takeover – once again defeating opposition from Icahn.

There may also be the chance of rival offers for Vmware, tempting Dell to hold out.

“We believe Vmware could attract interest from other suitors pursuing software such as Cisco,” said Jin Ho.