- While Broadcom forecasted better-than-expected revenue for the third quarter, VMware suspended its full-year outlook due to the pending acquisition.
- The chip-maker has already received commitments from a consortium of banks for USD32 billion in debt funding.
It’s now official, semiconductor heavyweight Broadcom will acquire VMware, the cloud computing and virtualization tech company. The deal, worth USD61 billion, will vault the former into contention with global dedicated technology leaders.
The pact is a combination of cash and stock. As per reports, Broadcom offered USD142.50 (or 0.2520 of a Broadcom share) per VMWare share, a 49% premium on the stock price as of May 25. This boils down to a cash-and-stock deal worth USD61 billion, but Broadcom is also set to assume USD8 billion worth of VMWare debt. Both firms employ 55,000 people, and their market capitalization is valued at USD267 billion.
The chip-maker has already received commitments from a consortium of banks for USD32 billion in debt funding. VMware, which said the offer was unsolicited, can solicit offers from rival bidders for 40 days as part of the agreement. If VMware accepts another offer after this time lapses, the firm will have to pay Broadcom USD1.5 billion as a break-up fee. But if it decides to pick another offer before the expiration of this period, a termination fee of USD750 million will have to be paid.
The quarterly results of both the firms, too, were reported: While Broadcom forecasted better-than-expected revenue for the third quarter VMware suspended its full-year outlook due to the pending acquisition. The chip-maker’s shares closed up 3.5%, and VMware rose 3.1%.
Broadcom’s board has also authorized a new share repurchase program of up to USD10 billion. VMware CEO Raghu Raghuram and Broadcom CEO Hock Tan made the deal public before VMware’s morning earnings call.
The deal is one of the biggest acquisitions in tech history, coming close behind Dell’s 2015 decision to buy EMC for USD67 billion and Microsoft’s giant USD69 billion deal to acquire Activision Blizzard. The pact comes close to the Biden administration’s push for more competition in all sectors – agriculture, technology, or any other.
Indeed, big-dollar acquisitions have been a part of Broadcom’s growth strategy. The firm has made two big deals in the past four years – the acquisition of antivirus software maker Symantec’s enterprise security unit for USD10.7 billion and CA Technologies in a deal worth USD18.9 billion.
Bid to Diversify
Broadcom is best known not just for its networking, data center, and industrial hardware but also as a chip-maker powering devices, including smartphones, PCs, and networking equipment. On the other hand, VMWare is focused on software and, in particular, virtualization.
According to a press release, bringing VMware under its wing will allow Broadcom to diversify and become “the world’s leading infrastructure technology company,” according to a press release.
With this acquisition, Broadcom would well be moving ahead with just making chips and venturing into the enterprise software sphere, which offers a highly lucrative recurring revenue model in the case of VMware.
Indeed, VMware has played a crucial role in the technology world’s transition to the cloud, delivering software to charge multi-cloud management, infrastructure, networking, security, etc.
“VMware has been reshaping the IT landscape for the past 24 years, helping our customers become digital businesses,” Raghuram said in a statement. “We stand for innovation and unwavering support of our customers and their most important business operations, and now we are extending our commitment to exceptional service and innovation by becoming the new software platform for Broadcom. Combining our assets and talented team with Broadcom’s existing enterprise software portfolio, all housed under the VMware brand, creates a remarkable enterprise software player. Collectively, we will deliver even more choice, value, and innovation to customers, enabling them to thrive in this increasingly complex multi-cloud era.”
“Building upon our proven track record of successful M and amp;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,” Broadcom president and CEO Hock Tan said in a statement.
Bola Rotibi, director of software development at research and advisory firm CCS Insight, said that the deal gives Broadcom a more “rounded infrastructure and cloud management story,” but warned that the deal won’t make Broadcom a software company overnight.
“VMware has a well-established footprint in data centers, giving Broadcom a much stronger position — particularly with the developer community and at the developer operations level,” Rotibi said. “However, acquiring VMware doesn’t immediately transform Broadcom into a software company. This has significant integration risk and Broadcom must prove that it can integrate a silicon, software and services story.”