VMware
investors have a key choice to make and the deadline is fast approaching.
VMware (ticker: VMW) shareholders have until 5 p.m. Eastern time on Monday to decide whether to get cash or stock as part of
Broadcom’s
scheduled $75 billion-plus purchase of the software company.
This is important because the stock option is much more valuable than the cash election. Shareholders who make no election likely will get all cash.
The companies issued a joint press release on Wednesday about the election deadline for VMware shareholders on Monday, but noted those who hold shares through a bank or broker may be subject to an earlier election deadline.
For retail investors at Schwab, the deadline has passed, with the firm cutting off elections by the end of the day Friday. For retail investors at Fidelity, the firm will handle requests only on a best-efforts basis on Monday.
The stock election (0.252 shares of Broadcom for each VMware share) is worth about $215, while the cash option is worth $142.50. That is a huge gap and reflects the run-up in Broadcom stock (AVGO) since the merger deal was unveiled in May 2022.
Broadcom effectively is capping the stock portion to 50% of VMware shares outstanding. So the current value of the deal is about $179 a share based on the assumption that investors get a 50/50 mix of stock and cash.
There have been some questions lately on Wall Street about whether the deal will get done due to tensions between the U.S. and China and that has depressed VMware stock. The Financial Times reported Thursday, citing people familiar with the matter, the Chinese State Administration of Market Regulation is likely to delay signing off on the deal and there will likely be additional consultations with Chinese government authorities.
The implied odds of the deal closing are about 50%, Barron’s calculates based on nearly $30 a share in potential upside to VMware stock if the deal gets done and an estimated $30 a share of downside if the deal falls apart.
VMW has said the deal is on track. “We continue to expect the deal to close on October 30, 2023,” a spokesperson told Barron’s on Thursday.
A Broadcom spokesperson didn’t immediately respond Friday to a request for comment.
It will be interesting to see how VMware stock trades after Monday. It could drop to around $142.50 because with the election deadline passed, investors may be entitled to just the cash value of the deal, or $142.50.
VMware shares were up Friday at $150.91, while Broadcom was off 1.6% at $853.63.
Write to Andrew Bary at [email protected]
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