Here is why VMware shares are up 20%

VMware Inc. (NYSE: VMW) shares are up 20% after reports that Broadcom Inc. (NASDAQ: AVGO) announced that it was in talks to purchase the cloud solutions firm. According to sources familiar with the matter, the companies continue with talks, but there is no guarantee that they will reach an agreement. The sources sought anonymity because the matter is yet to be public.

Broadcom to purchase VMware and create a large software corporation

The potential deal will transform Broadcom into a large corporation in the tech sector, offering various products, including chips plus cloud computing solutions. It is vital to note that VMware is a popular provider in the cloud sectors and offers its solutions to firms that use them to manage data centers and cloud networks.

For some time now, Broadcom has been looking for a large software firm purchase to help it grow. Hock Tan, the company's CEO, has made a series of purchases in the past few years to grow it into one of the biggest and most versatile companies in the semiconductor sector, including the acquisition of Symantec Corp.'s security management unit in 2019 and the purchase of CA Technologies in 2018.

According to Bloomberg data, prominent investors in VMware include private equity group Silver Lake and Michael Dell, who acquired it in 2016. VMware was formed in 1998 and purchased by EMC Corporation in 2004. After which, it offered a portion of its stock in an IPO after three years. Dell acquired it in 2016, and it was formally split from Dell in 2020

VMware invented virtualization software

VMware invented virtualization software, which allows users to combine apps and tasks onto fewer server systems by allowing every server to run several programs. VMware failed to keep up with the expansion and cut out an important part as more jobs shifted to cloud computing. Amazon.com Inc. later became a close partner of the company.

VMware's spokesperson refused to respond. Broadcom did not immediately respond to requests for comment.

In New York trade Friday, VMware increased 0.8 percent to $95.71, giving the business a market worth of around $40 billion. Broadcom is worth roughly $222bn on the stock market.