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Chipmaker Broadcom will buy Vmware for $61 billion

Broadcom said Thursday it will acquire cloud computing company Vmware in a $61 billion cash-and stock deal, the chipmaker’s biggest and boldest bid to diversify its business into enterprise software.

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

The offer of $142.50 in cash or 0.2520 of a Broadcom share for each Vmware stock represents a premium of nearly 49% to the stock’s last close before talks of the deal were first reported on May 22. Broadcom will also assume $8 billion of Vmware’s net debt.

The chipmaker’s shares were up nearly 3%, while Vmware rose 2% in morning trading.

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

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

Broadcom will instantly be validated as a major software player with the acquisition of Vmware, Futurum Research analyst Daniel Newman said.

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

The deal comes at a time when there is an increased push by the Biden administration for more competition in all sectors ranging from agriculture to technology.

“The Federal Trade Commission could be concerned

Broadcom will use the acquisition to potentially bundle services or raise prices,” said Josh White, assistant professor of finance at Vanderbilt University.

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

The agreement is also a coup for Dell Technologies CEO Michael Dell, who spun Vmware out of the computer maker last year.

Michael Dell owns a 40% stake in Vmware, while his financial backer Silver Lake, a private equity firm, owns 10%. They have both agreed to vote in favor of the deal.

Broadcom has already got commitments from a consortium of banks for $32 billion in debt funding.

Vmware, which said the offer was unsolicited, will be allowed to solicit offers from rival bidders for 40 days as part of the agreement.

Both the companies also reported quarterly results, with Broadcom forecasting better-than-expected revenue for the third quarter, while Vmware suspended its full-year outlook due to the pending acquisition.

Broadcom’s board also authorized a new share repurchase program of up to $10 billion.

Broadcom’s pivot into software started after its attempt to acquire mobile chip giant Qualcomm was blocked by President Donald Trump in 2018 on national security grounds.

Since then Broadcom took over business software firm CA Technologies for $18.9 billion and acquired Symantec’s security division for $10.7 billion.

It also explored acquiring analytical software company SAS Institute, but did not proceed with a bid.

Broadcom then went on to slash costs at the acquired businesses. It cut the sales and marketing budgets of the CA and Symantec businesses from about 29% of their revenue to 7%.

BUSINESS

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2022-05-27T07:00:00.0000000Z

2022-05-27T07:00:00.0000000Z

https://daily.gazette.com/article/282059100623407

The Gazette, Colorado Springs