Broadcom to Buy VMware for $61 Billion

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube search Bloomberg Global News. But it was just this past weekend that the news broke that Broadcom was said to be and talked about vm Ware. Well, it became official this morning. Dina bas is Seattle bureau chief for Bloomberg News. Dina joins us now on the phone from Seattle. We got some more details, thanks to you and to Leanna Baker Dinah, sixty one billion dollars. It's a record

tech deal. There's a ghost shop provision here. What else do does our investor audience need to know? Uh? You know, so, Broadcom was basically saying that vm Ware is going to become the new name for its off for a business, is going to become the focus of a software business that they've been building for the last couple of years. Uh. There is also a go shop provision in here, though, so vm Ware can for a limited period of time try to find other bidders. So we'll we'll see if

that creates additional late, late breaking drama in this deal. Boy, it's good to be vm Ware, right, I guess at this point, I mean who else wants it? Or who should want vm ware? Dina. You know, vm Ware has partnerships with all of the major cloud companies, so and the closest one is with Amazon's cloud business, So we're

talking Amazon, Microsoft, Google. The problem is that in the current regulatory environment, it's going to be difficult for any of those companies to to put together a deal potentially. Uh that that's going to be a little hard with the scrutiny that regulators are putting on on large tech. UH. Intel another chip maker. Obviously Intel CEO used to be the CEO of vm Ware. UH. Cisco is another name that's been been mentioned, But we don't know what's going

to happen from here on out. All right, So we have a very smart audience, I know that. But if they're not familiar with Broadcommon, vm Ware, what is it about these companies, what do they do and what is it about them that maybe makes a good combination. Well, you have to look back at broadcomms M and a strategy over the past couple of years. They're a hardware company, a chip maker, but in order to reduce their exposure to the cyclicality of the chip industry, they've been buying

up software companies. They bought a big part of Semantic, they bought ci A technologies and part of what they do UM. When they do that, it's almost a private equity like strategy. They look at these companies that are a little bit more mature, but have solid, successful product lines that they can you know, continue running and bring in money and and ring costs out of At the same time, software tends to be a more regular flow of revenue than than hardware and chips in particular, which

are as I mentioned, very cyclical. So when you look at vm ware, you have a company that pioneered a type of software called virtualization software, and UM, even though that technology is being surpa asked by the sorts of things people are using more frequently in the cloud. They still have a very strong position. They're still very deeply embedded in a very large number of corporate networks and their software basically helps you reduce the number of servers

that you have to use and cut costs. Well, I think about where we were yesterday Informatica in Vegas, right, and this was yes cloud, but it was also about taking data, making it intelligent, doing lots of different things with it. Like it's just this. I feel like there's a lot of crossover happening within the tech INDs right with so much data is how do you make it valuable to different customers? So Sodina, what what does Broadcom end up doing with vm where? Now? How why are

these companies better off together than they would be by themselves. Well, vm Ware has been in a tough spot for the last couple of years. There's been a lot of financial engineering going on around the company. So if you if you go back historically, vm Ware was a very successful startup, was bought by e MC and probably the most valuable tech deal you know in the history in terms of what e MC paid for it and what it ended up making them in money. But then e MC gets

bought by Dell. Vm ware has been you know, spun awesome doll back into you know, it's been there's been a lot of backports about where what's gone on with them and all that's going on. They've been trying to come up with a strategy to deal with this uh legacy product line that I talked about before, this virtualization software.

How do they modernize, how do they regain the leadership role they once had in a market that's bypassed them, And so they've been investing in a lot of different areas and security, mobile device management, networking, but still the vast majority of the revenue is coming from this older software. So he've been struggling to figure out what the strategy is as a standalone company in terms of how they're

going to continue growing. Their revenue growth has ticked down into the single digits where two years ago, three years ago was in the double digits. That's been challenging. Being owned by Broadcom freeze them from having to worry about that. Broadcom. You know, I spoke to Broadcom Software president Tom Croft this morning and he said, look, you know, yes, they're single digit revenue business. But that's the type of business

we run very well. Um and so VM work gets to be you outside of the stock market scrutiny of around its growth rates, and Broadcom will will try again to squeeze costs out of it and and focus on profit of you know, this aging product line. Heyda. What's going on just more broadly in the tech industry, especially as we're seeing kind of the big tech really under fire. If you look at certainly the performance in the equity markets this year so far. But there's been a lot

of tech deals, right, and some big ones this year. Sure, obviously you know there's Microsoft Activision at sixty nine billion, he said earlier. This one is the biggest tech deal. But that's only if you consider Microsoft activision of gaming or entertainment deal. I suppose what we're seeing right now is kind of a confluence of different, potentially conflicting factors. So companies valuations are going down because the market is

going down, So acquiring a company becomes potentially cheaper. That said, the company doing the acquisition, if they are doing it by stock, well, their stock is going down to so you have to weigh that and We talked at the top of this conversation about the increasingly difficult regulatory environment

around large deals. So you have a cup of different forces pulling on things, but valuations are going down and that that may enable some more opportunistic buying for those buyers that that can get their deals approved by regulators and have the cash or the stock to do it. Kind of fascinating just to see what's going on and what is so far, I feel like a very crazy financial market year, Dina explained, so much. Thank you so much, Tina basked, she Seattle bureau chief that Bloomberg News joining

us on the phone from Seattle. So again, right, we heard about the deal just not even a week ago, and here you have it. Yeah, but you know, in just a few minutes, we're gonna talk about Stays big take, which is about you know, the troubles brewing in tech. Yeah, exactly. This will get you thinking in a big way. This is Bloomberg. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio.

So more Americans died of drug overdoses in then any previous year to mention these numbers, more than a hundred thousand Americans, that's up fift from the previous year. More than eighty thousand died using opioids. And just yesterday we got where that Teva will pay ten million to settle

opioid related claims that just in West Virginia. And remember earlier this year, tim there was news that for the largest U S corporations have agreed to pay roughly twenty six billion to settle a tsunami of lawsuits linked to claims that their business practices help you the deadly opioid crisis. Well, we've got an expert voice with stalk all things when it comes to the opioid epidemic here in the United States, Dr Caleb Alexander, as Professor of Epidemiology at the Johns

Hopkins Bloomberg School of Public Health. Dr Alexander is we should know it has been an expert for plaintiffs in opioid litigation. Dr Alexander, how are you fine? Thanks for having me, Well, you've been working on something. You've been developing, the Opioid Industry Document Archive. It's launched by Johns Hopkins University and u c SF. We should know that JOHNS.

Hopkins Bloomberg School of Public Health that is supported by Michael R. Bloomberg, founder of Bloomberg LP and Bloomberg Philanthropies. What is the Opioid Industry Document Archive? The Archives is an effort to shine the bright light of day on millions of documents that have been generated through ongoing opioid litigation.

It provides an opportunity for members of the public breath to have lost a loved one, researchers, historians, legal scholars, and others to be able to examine the corporate practices that has contributed to the worst drug epidemic in our country's history. You know what's what's fascinating to me, Dr Alexander and I think about this When any of the drug companies seem to um come to a settlement to settle those opioid related claims, they usually say, what we

did nothing wrong. When you look at this archive and you are able to see these documents, is that not

fair event to say that? Well? It him. It's an excellent question, and I should start by saying that it's unusual that out of litigation we get this opportunity to actually put these sorts of documents in the public domain all too often, unfortunately, uh these documents remain field and and the public never has an opportunity to actually see, uh see these types of internal corporate communications, emails, presentations,

sales reports, budgets and the like. And you know, I don't think we would be seeing settlements of billions and billions of dollars. You just pointed out the one for twenty six billion with four of the country's largest corporations. I don't think we would be seeing settlements of that magnitude if there wasn't longdoing that had taken place, Dr Alexander.

We we are getting, you know, thanks to the Opioid Industry Document Archive, to some really great work by a journalists who've dug into this over the last few years, we are getting a good understanding of what some companies have done with regards to their marketing of these pharmaceuticals. The cat, though, is out of the bag and the proof is in the pudding. As Carol mentioned, more than a hundred thousand overdose deaths here in the United States

just last year. What now does the United States do? What can we do to start preventing these deaths and to get these numbers to come down. Well, there are many abatement activities that are underway in cities and counties around the country. And we know, for example, that there are highly safe, highly effective FDA approved treatments for opioid addiction,

and we need to scale these up massively. But but the real focus of the Archives is really to allow for us to learn what took place within these corporations so as to prevent these sorts of activities from occurring again. And we have a president which is tobacco. The Opioid Archives sits upon a fire or kind of tobacco industry documents that's been used for decades to reveal industry strategies, to question science, hast doubt about the health harms of

its products, and delayed public health regulation. And and you think the most documents there have been very important policies put in place regarding tobacco, such as state and local ordinances mandating smoke free public spaces and workplaces. Well, we certainly could talk for a long time on this, and hopefully we can talk again in the future because we've

unfortunately run out of time. But interesting and important work that you guys are doing, and as you said, It's not often that we get people have access public access to all of the documents involved in in cases like this. Dr Caleb Alexander's, professor of Epidemiology at Johns Hopkins Bloomberg School of Public Health, joining us on the phone from Baltimore.

Of course, the school is supported by Michael Bloomberg, founder, Bloombergalpy and Bloomberg Philanthropies, and Dr Alexander's we said served as an expert for plaintiffs and opioid litigation. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well the cover of the new issue of Bloomberg Business Week. It's also Today's Bloomberg Big Take. It's how the tech route isn't just cyclical, it is well earned and it is overdue. The story

by Bradstone and Lazette Chapman. It's this week's cover story, as Carol mentioned, is available on newsstands, on the Bloomberg and at Bloomberg dot com. Slash business Week with us Now to tell us all about it is Jeff Muscus, Senior Features editor for Bloomberg Business Seek. He's with us in the Bloomberg Interactive Broker Studio along with Joel Webber, the editor of Bloomberg Business Week, who's with us as well. Joel. So, so, all good things must come to an end, and it's

certainly seeming like that's happening in Silicon Valley. Yeah, we kind of called the bottom and now it's coming out, you know, to Nazac two days, it's creeping back out since we kind of put the finishing touches, said, uh, it'll regress tomorrow. I'm sure. Um, But basically, you know, we do a tech you every year, and what we really wanted to talk about here, and I think it just became impeccably unfortunate timing because every it's like the world caught up to the ideas that we had in

this package is everything has started to change. The VC backed funny money, when money was free, led to a lot of uh, you know, exorbitant ideas and investments and SPACs and crypto and we're seeing an aggression to the norm. I think, or and what Jeff really set out to do and as the architect of this package and brad Stone and was that, like you mentioned, wrote the cover story, which I think is the the in the Today's big Take,

which really sets the table. But there's a lot of other things in this package that helped kind of amplify this idea. So Jeff being the guiding hand that put all of these stories together, Like, what were you what were you setting out to accomplish? Sure? Well, like you said, Joel, we sort of started out from the position of okay, well you know here we are sort of um returning to very degrees of a new version of normal as people returned to their offices and that sort of thing.

And so for the first time really in in two years, we're taking a sustained and marginally less COVID inflicted look at where is the tech industry now? Where are all these you know, big name companies that you know, a lot many of us haven't. I haven't been looking that squarely act for the past couple of years. And what does the tech world look like now? And where's it going?

And with that in mind, you know a lot of our best writers and reporters here at Bloomberg News and on the Tech team, uh took a look at some of our our biggest, bold faced name targets from Instagram and TikTok uh, to Google and all the way down. Uh and then you know, sort of looking forward to

where is the tech world going. We have a bunch of interesting looks both that things like prediction markets that are sort of on the bubble of regulation and biotech stories like this, look at h what they're called better odds babies, the science of pologenic risk scoring that might well just be the next big thing. So one of the things that I loved about the package was like,

they're serious stuff. But then there's like the perfect encapitulation of everything that Jeff talking about is just remember the scooter craze. Want to start to feel a little bit like a segue now, Uh, it survived the pandemic mostly, Jeff, But why why why was it like such a perfect

story to include in this context. Well, like you're saying a minute ago, Joel, that you know, right before the pandemic, the bottom started to drop out of this uh wave basically decade long cash burning as a means of not just survival, but as the main strategy for a huge

part of the venture backed tech industry. And uh so the scooter craze was well suited for that moment where the whole deal was Okay, well, you know this or that mega fund is going to give you guys nine figure checks on the regular to go out and build

an exploicit monopoly. Now go do it um and coming out of the pandemic for for a variety of reasons, or you know, as people start to to need things like scooters again, we come back to find these companies sort of clinging to life to varying degrees and without the easy access to capital that everybody got used to. Hey, Jeff, I feel like one of the things that I feel like with every guest, and you often hear like pets dot com, pets dot com, Like, are we likning exactly?

Are we lining like this tech route that we're seeing. Is it similar to what we saw in two thousand? I mean, are those comparisons fair or is it different? I think we're still ways off the sort of industry wide carnage that we saw at the end of the dot com bubble, But Brad and Lazett are smart to draw the comparison, at least in terms of the hype machine between you know, the sort of infamous pets dot Com super Bowl ads and the Super Bowl ads we

saw this year. With all those crypto celebrities. Yeah, the crypt the crypto pets comparison. My favorite was the Larry David one because I'm just a big Larry David. There's some other ones that are pretty good too. But so, you know, what does VC actually had to say about this, because that figures into Brandon was that story to bring it back to today's big take, right, like because they're

undaunted really right? Yeah, for what it's worth, most of the sort of mainline VC types that you would want to talk to you and that Brandon Lizette went out to for for this kind of piece, you know, kind of said, well, the next next thing is coming, like this is going to expose the businesses that aren't ready for the next moment for what they are, and the people who have done the work to prepare for a

storm like this are gonna be just fine. Well, and more new money keeps coming in, right, Like we talked about all these these these startup companies that are able to stay private for what ten years and right, and they don't have to tap the public. Just straight Carol Andrees and Horowitz announced directly four point five billion dollar fund for crypto, just for crypto, top or. I mean, it could have been a long time in the process or chasing the next big thing and and trying to

figure out where it kind of goes from here. And so I think just again to bring it back to to to brad Stone and like why we wanted to do this on the cover, it was like there is a controlled burn every once in a while that hits, and like that's kind of what it feels like right now, where it's like, let's suppress some of the funny money, let's go back to basics. And while that's happening, you know what. I think We talked about this yesterday with

Sarah Fryer on on this show. It's like even the Metas of the world have to look themselves in the mirror and realize that, you know, TikTok is eating their lunch and they have to basically take their business model and and basically come up with a way of fighting back, right, And like even even Meta has to deal with this stuff, right the biggest companies in the world, so text obviously ever changing. It's why it makes it so much fun to talk about. But even the Sacred Cows, you know,

there comes the moment that everything is cyclical. Yeah, it's pretty remarkable. Right, it's the big tech that are having

to kind of do some soul searching, that's right. Whereas you know, the last couple of times we we sort of talked about something like this, as as Brandon's point out in the piece, you know, it was something that the rest of the industry could more or less look at or call out as an outlier, a pharaonis or even though we work the damage here, as you were saying, a moment ago is too broad based to just sort of ignore as cost doing business, great timing, you know,

we just we just do it every week. Remember Joe called the bottom, Remember this day, Remember pressure Joe Webber. He's the editor of Bloomberg Business Week and Jeff Muskus is senior features editor at Bloomberg Business Week, both in studio. This is the cover story now on newsstands, on and on the Bloomberg This is Bloomberg Radio. I'm a journal Yeah, but you let me drive. Oh no, no, no, no, all right, please, I'll do the right gravels. I want

to drive. It's a good question. Good drive. This is the drive to the clothes. Well don on Bloomberg Radio. All right, we are just about ten a half minutes left in today's trading session. It is time to drive to the clothes and we've got a good guest who's gonna give us some specific names that he's interested in. Max Washerman is the founder and a senior portfolio manager at Miramark Capital. Max joining us this afternoon on the phone from Northbrook, Illinois. Max, how are you. I'm doing well?

Thank you well. Before we get to some of the picks that you have, I just want to get your take on on the markets and what we're seeing right now. Two days in a row of gains for the Indusseas. Are we out of the woods? I don't think necessary we're out of the woods, but I think we're trying to find a bottom. And with the Federal Reserve released some notes the other day and basically didn't surprise anyone on the downside, meaning they're not giving any shockers, so

that helped. And also I think with some of the retail numbers that came out Donald the General Dollar Store basically coming out and saying that the consumer is not dead. With an over sold market, I think you're getting some life. So you think it's over, you think it's over sold. I think the market is a little over sold right now. The negativity is so pervasive that when you have any negative news come out and the market starts to rally, that's usually a good sign that we're trying to find

a bottom. And I think we're I think we're like in the seventh bending, if you would baseball analogy. But I mean, Max, you sound really optimistic. Well, I think when you know what the problem is, that's a big step in the right direction. Where before the Federal Reserve didn't have a where the problem was. They thought, you know, inflation was transitory. They felt that they could take a lack of days approach on raising interest rates, supply chains,

all these issues we really know about. It's just addressing them and working through it. So I think, yeah, I'm optimistic in the long term. It doesn't mean, like Harol mentioned, you could get it more downside, and we could see another five to seven percent on the downside. But we think we're through the majority of the problem. And it's been a bad market. I mean, nas deck was down thirty and the SMP was close to down twenty. It could still go further, but we're not We're not bailing

on this market, all right. At this point, I'm just going to another sports. I'm talking about football. Have you ever seen Tom Brady pull out a game in the last quarter or the last few minutes. It's pretty remarkable. So much can happen, Uh, in so many different ways. Volume is something, And I can't remember that it it was Randy Watts or another guest who brought in that. What we tend to see though, is not the volume confiction

behind an update. Uh, it's not there. And I'm looking at one of the metrics on the Bloomberg in terms of volume on the New York Stock Exchange, and it looks like we're down again, so that there's not necessarily even though it's a broad based felt rally, it's not like a lot of investors are jumping in on this. No, I don't think they are. In fact, when you come into a holiday weekend, you're gonna have even less volume activity. But I think what you're starting to see though, if

you're trying to find the retailers find a bottom. I mean whether you take a Target of Walmart or even a Costco, and you're trying to find out where the bottom is, and you're starting to see that you can still go lower. I mean, we all know emotions can take you. We know the FED could surprise at some point in raise interest rate seventy five to a hundred

basis points where somebody's not expecting it. That being said to be super negative at this particular juncture, I'm not sure it serves the purpose because we know the interest rates are going up. We know inflations here. We know we have supply constraints, but they're being addressed. I think we just have to work through this excess in the market, and I think we're doing that. Okay, let's talk about some of the individual stock picks that you have, because

you've got some really interesting ones. I want to start with UPS. Why are you bullish on UPS? I think we like we're divid in growth UM. We like a lot of companies are paying above average dividend growing it UM good multiple. So UPS has been able to make our return on capital about and they've been really able

to profit in the last mile of delivery. You take that along with the fact that UM trailing earnings are about fourteen times forward earnings about fifteen times right now, paying a three point four percent dividends they increased the dividend in the past year, and they increased the buy back by up to two billion in stock, so it has all the fun amounts. We think it's in the right place, and when people are shopping, they're still using ups,

max backs, backs, macs. Fundamentals, though, is it really fundamentals when we're talking about buy backs and dividend growth versus maybe investing in the business or hiring you know what

I'm saying. Sure, I hear what you're saying. And what's interesting is we've had a lot of guests coming on who are looking at stocks that are that are paying dividends, and to me, at is a little bit more of a safer play that you know you're gonna get that dividend no matter what the share price doesnt, no matter what the environment does. Well, you know, we've been a consistent diviend grower. It's not like lately we've been doing the firm. But look at the fact that they were

able to raise the dividend. That's the big thing. That's a cash flow. They have a new CEO and she's been able to really focus on profitability, so they're handling package. They've increased prices by about ten percent, so they being able to handle some of the inflation. That doesn't mean there's not problems in the fundamentals facing the whole industry.

But again, we're looking long term on these stocks. And when I look at the risk reward of a stock of this caliber paying the dividend the way they did, increasing it having to return on capital about thirty, I don't mind holding a company like this when it's a blow market multiple and paying such a strong dividend. So yes, it's gonna be a while. But these are the type of companies when the economy gets better, they really benefit.

And it has some defensive capabilities and the fact that it's training below the market and it's giving you a lot more annal so we like that part. But and they're very profitable so to Thus it's a tough market, but this is the type of company we want to hold out in. Okay, what about VF Corps. Uh, this is a company that makes the north Face Vans Timberland Supreme. Why are you optimistic on VF Corps? Well, we're optimistic

more now. I mean the stock was about eighty five dollars on a twelve months basis and now it's down to like in the mid forties. Right, it's forty eight today it's up three. It's paying you about a four point two percent dividend. It's a dividend aristocrat. And their business has been growing very strong. It's just in China where they've been having some weakness in the van's line. If you look at it from their perspective, they've been able to get rid of the inventory pretty much of

full price, which is really good. And the gross margins they just reported they only had to decrease in the operating margins by like fifty basis points. So here's another company's trainer at thirteen times earnings. It's in the apparel outdoor way are which is a five billion dollar industry. They owned two percent of it, like eleven billion in revenue, and we think they have the potential as everybody starts to travel and they go out and they spend more.

So the fact that we're recommending the stock, it's been already hammered from the eighties down, So we think the risk reward at this price again here is asymmetrical. We think we could see a lot more upside as the economy and people start traveling and buying. We know they have problems, but it just came out and reiterated the cash flow, and they just reiterated the earnings. So at this time a downside, we think it's there, all right.

Get around, Hey, Max, Thank you so much. Max Wasserman, He's founder and senior portfolio manager at the independent private registered investment advisory for A Miramar Capital, training us on the phone from Northbrook, Illinois. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube. Sara to Bloomberg Global News