Broadcom buys VMware for $61 billion as the chipmaker seeks to diversify


Broadcom announced it will acquire cloud-computing company VMware in a $61 billion cash and stock deal, the chipmaker’s largest and boldest offer to diversify its business into enterprise software.

The acquisition is the second largest announced globally so far this year, behind only Microsoft’s $68.7 billion deal to buy video game maker Activision Blizzard.

The offer of $142.50 in cash, or 0.2520 Broadcom shares for each VMware share, represents a premium of nearly 49 percent over the stock’s last closing price before the transaction was first discussed on May 22. Broadcom will also assume $8 billion of VMware’s net debt.
Shares of the chipmaker are up nearly 3 percent, while VMware is up 2 percent in morning trade.

Broadcom Chief Executive Hock Tan, who built his company through acquisitions into one of the world’s largest chipmakers, is now bringing his dealmaking playbook to the software sector.

In one fell swoop, the deal will nearly triple Broadcom’s software-related revenue to about 45 percent of its total revenue.

Broadcom’s acquisition of VMware immediately reaffirms it as a major software vendor, said Daniel Newman, an analyst at Futurum Research.

“Having something like VMware … will open a significant number of doors that their current portfolio probably doesn’t open for them,” added Mr. Newman.

The deal comes at a time when the Biden administration is pushing for more competition in every sector from agriculture to technology.

“The Federal Trade Commission (FTC) may be concerned that Broadcom will use the acquisition to potentially bundle services or raise prices,” said Josh White, an assistant professor of finance at Vanderbilt University.

“Ultimately, the FTC will want to understand whether this consolidation would affect overall competition and prices, especially in this inflationary environment,” added Mr. White, also a former Securities and Exchange Commission financial economist.

The deal is also a coup for Dell Technologies CEO Michael Dell, who spun off VMware from the computer maker last year.

Michael Dell owns a 40 percent stake in VMware, while his financier Silver Lake, a private equity firm, owns 10 percent. Both have agreed to vote for the deal.

Broadcom has already secured commitments from a syndicate of banks for $32 billion in debt financing.

VMware, which said the bid was unsolicited, is allowed 40 days to solicit bids from competing bidders under the agreement.
Both companies also reported quarterly results, with Broadcom forecasting better-than-expected third-quarter revenue, while VMware suspended its full-year outlook due to the pending acquisition.

Broadcom’s board of directors also approved a new stock buyback program of up to $10 billion.

Broadcom’s shift to software began after a 2018 attempt to acquire cellphone chip giant Qualcomm was blocked by former US President Donald Trump on national security grounds.

Since then, Broadcom has acquired enterprise software company CA Technologies for $18.9 billion and acquired Symantec Corp’s security division for $10.7 billion. Broadcom buys VMware for $61 billion as the chipmaker seeks to diversify

Fry Electronics Team

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