Broadcom's $61 billion acquisition of VMware, announced in May, became the third-largest technology acquisition in history, behind Microsoft's $69 billion purchase of Activision Blizzard and EMC's 2016 acquisition of Dell for $67 billion. We can now bet on the completion of this acquisition with up to a 25% return.

The days when Broadcom $AVGOwas known-10.4%as a brand that made chips and hardware are long gone. The modern version is growing into a conglomerate that is gobbling up companies, often with older technologies, and finding ways to run them independently and profitably. The new purchase represents a significant shift from their traditional hardware manufacturing to the emerging world of software.

VMware shareholders can choose to receive $142.5 in cash for each of their VMware shares or 0.252 shares of Broadcom stock if the transaction is completed, a nearly 21% premium to the current share price. The transaction is then subject to regulatory approval and other customary closing conditions, including approval by VMware shareholders. It is expected to close in Broadcom's fiscal year 2023.

Why VMware?

VMware is a software solutions company providing solutions in the areas of modern applications, cloud management and infrastructure, networking, security and digital workspaces. After separating from Dell Technologies in November 2021, VMware became a separate entity. The software provider operates in three segments: licenses; subscriptions; and software services.

It creates an almost indispensable piece of software used by developers and development teams to create and run virtual machines. It has long been popular with developers, allowing them to package all the files and operating system for a particular machine into a file that can be easily duplicated.

The Palo Alto, California-based company operates and sells globally, with about half of its revenue coming from the United States through direct sales, distributors and partnerships.

Acquisition machine on behalf of Broadcom

Broadcom plans to integrate some of its other software businesses with VMware and operate them all under the "VMware" brand. The company has already assembled a wide range of software companies. Some of the brands now under Broadcom's umbrella include Arcot, Symantec, Clarity and Rally.

"This transaction brings together our leading semiconductor and infrastructure software businesses with an iconic pioneer and innovator in enterprise software, pushing the boundaries of what we can offer our customers," said Broadcom CEO Tan Hock Eng.

The merger also offers both companies a chance to diversify. Broadcom is leaving behind its focus on chip-making and hardware manufacturing for the potential of higher margins with software. VMware gains access to the hardware tier and the longer-term stability of the hardware business.

The deal is under investigation by antitrust authorities

Chip giant Broadcom's $69 billion acquisition of software company VMware is facing a lengthy antitrust investigation in Brussels over concerns from regulators that the deal will harm competition across the global technology industry. EU officials are concerned that the merger could lead to unfair practices, including possible future price increases by the US chipmaker.

Many large acquisitions are subject to a similar investigation, known in EU circles as "phase 1", which typically takes several months. However, it is possible that the EU authorities plan to pursue a more detailed 'Phase 2' investigation, which could take more than a year and could ultimately scupper the transaction altogether.

A word in conclusion

VMware's current price reflects the uncertainty surrounding the completion of the deal. VMware shareholders should keep an eye on developments on the regulatory front first and foremost, as this appears to be a key hurdle. However, taking this risk into account, a reward of 20% or more appreciation strikes me as attractive.

DISCLAIMER: All information herein is for informational purposes only and is in no way an investment recommendation. Always do your own analysis.