- Raymond James analyst Simon Leopold downgraded VMware, Inc (NYSE: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 (NASDAQ: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 (NASDAQ:CSCO) or Alphabet Inc (NASDAQ:GOOG) (NASDAQ: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 (NYSE:IBM) (Red Hat), and Nutanix, Inc (NASDAQ:NTNX).
- He also imagines that Dell Technologies Inc's (NYSE: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.
