- Raymond James analyst Simon Leopold downgraded VMware, Inc VMW from Outperform to Market Perform.
- The re-rating reflects the expiry of the "Go Shop" period with no other bidders. He expects Broadcom Inc AVGO deal to win approval but will take about a year to close.
- Leopold views Broadcom's bid of $61 billion, or $142.50 per share for VMW, as a good deal for the buyer.
- The combination of support from the deal and the prospect of another bidder has supported VMware's stock.
- With the expiration of the go-shop and a long wait for the deal to close, he expects VMware shares remain stable.
- He considers the Broadcom offer a bit disappointing.
- However, the offer exceeded where shares traded just before the deal, implying that either Broadcom is getting VMware for a bargain or he was overly optimistic regarding the trajectory of VMware's business. The absence of other bidders symbolizes his over-optimism.
- His optimism originated from the strategic value and arguably more significant synergies for firms like Cisco Systems, Inc CSCO or Alphabet Inc GOOG GOOGL.
- Broadcom has expressed its plan to reduce expenses by focusing on VMware's top customers, which he thinks opens up opportunities for competitors, including Cisco, International Business Machines Corp IBM (Red Hat), and Nutanix, Inc NTNX.
- He also imagines that Dell Technologies Inc's DELL role as a channel partner for VMware could become more strategic to Broadcom. A bit over a third of VMware sales flow through Dell's income statement as a channel partner.
- Price Action: VMW shares traded lower by 0.48% at $113.49 on the last check Wednesday.
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