Broadcom to acquire VMware in $61 billion deal
The deal will enable Broadcom to diversify away from its main business of designing and selling semiconductors into enterprise software
Chipmaker Broadcom confirmed on Thursday that it is buying enterprise cloud service provider VMware in a cash-and-stock deal to accelerate its expansion into the enterprise software business.
The deal values VMware at about $61 billion (about £48.3), based on the price of Broadcom common stock at the end of trading on May 25, 2022. It also includes VMware's net debt of $8 billion (£6.3 billion).
By purchasing VMware, Broadcom will be able to diversify away from its main business of designing and selling semiconductors towards enterprise software, which has the potential for higher margins.
As part of the transaction, each VMware shareholder will get $142.50 in cash. Alternatively, they may opt to receive 0.2520 shares of Broadcom common stock in exchange for each VMware share they own.
After the transaction is closed, the Broadcom Software Group will be renamed and will operate as VMware.
The new business, according to Broadcom, will provide enterprise clients an extended portfolio of key infrastructure solutions to accelerate innovation and handle the most challenging information technology infrastructure requirements.
Hock Tan, President and Chief Executive Officer of Broadcom, said, "Building upon our proven track record of successful M&A, this transaction combines our leading semiconductor and infrastructure software businesses with an iconic pioneer and innovator in enterprise software as we reimagine what we can deliver to customers as a leading infrastructure technology company."
Michael Dell, who owns more than 40% of VMware with Silver Lake, has backed the buyout deal, which is expected to close in Broadcom's fiscal year 2023.
"Together with Broadcom, VMware will be even better positioned to deliver valuable, innovative solutions to even more of the world's largest enterprises," Michael Dell said.
"This is a landmark moment for VMware and provides our shareholders and employees with the opportunity to participate in meaningful upside."
Bloomberg was the first to report about the discussions between the two companies on Sunday.
Broadcom's market capitalisation was over $222 billion (£176 billion) on Friday, 20th May, whilst VMware was valued at approximately $40.3 billion (£32 billion).
Broadcom is best known for its chip business, which designs and manufactures semiconductors for modems, Wi-Fi and Bluetooth chips that are used in a variety of products.
VMware, on the other hand, has long been considered as one of the most important players in the cloud computing sector. Its services are used by large companies to manage private and public cloud networks, as well as data centres.
In recent years, the share price of the firm has been on a declining trajectory, which has led to growing interest in the company being acquired by another company.
According to the statistics provided by Refinitiv, the personal computer industry billionaire Michael Dell is VMware's largest shareholder, owning more than 40% of the firm.
In 2016, Dell and Silver Lake, a private equity firm, paid a combined $67 billion (about £53 billion) to buy VMware as part of a bigger agreement to purchase the technological behemoth EMC.
The transaction was one of the biggest in the history of the technology industry, and was largely financed by using VMware as collateral for more than $50 billion (£40 billion) in loans.
Following the completion of the acquisition, Dell continued to have a public investment in VMware amounting to 19% and controlled the company separately from Dell Technologies, his personal computer and technology infrastructure company.
Last November, Dell Technologies completed the spinoff of its remaining 81% stake in VMware, while pulling a $12 billion (£9.5 billion) dividend out of the company.
The Broadcom-VMware deal is one of the biggest tech acquisitions ever, just behind Dell's $67 billion EMC deal and Microsoft's pending acquisition of video game maker Activision Blizzard for $68.7 billion (£54.4 billion).
Broadcom is the most acquisitive semiconductor firm, which has acquisitions as a strategic tool in recent years to drive its expansion.
Broadcom's last major acquisition was in 2019, when it purchased Symantec's enterprise security business for nearly $11 billion (£8.7 billion).
In 2016, the company spent $5.9 billion (£4.7 billion) to acquire Brocade Communications, and in 2018, it spent around $18 billion (£14.3 billion) to acquire CA.