Broadcom to buy VMware in $61bn deal
Semiconductor manufacturer Broadcom has agreed to acquire virtualisation firm VMware in a $61 billion deal.
In a statement issued yesterday, Broadcom says following the closing of the transaction, the Broadcom Software Group will rebrand and operate as VMware, incorporating Broadcom's existing infrastructure and security software solutions as part of an expanded VMware portfolio.
VMware was the first commercially successful company to virtualise the x86 server architecture.
By bringing together the complementary Broadcom Software portfolio with the VMware platform, it says the combined company will provide enterprise customers an expanded platform of critical infrastructure solutions to accelerate innovation and address the most complex information technology infrastructure needs.
It adds the combined solutions will enable customers greater choice and flexibility to build, run, manage, connect and protect applications at scale across diversified, distributed environments, regardless of where they run.
Hock Tan, president and CEO of Broadcom, says: “Building upon our proven track record of successful M&A [mergers and acquisitions], 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.
“We look forward to VMware’s talented team joining Broadcom, further cultivating a shared culture of innovation and driving even greater value for our combined stakeholders, including both sets of shareholders.”
Raghu Raghuram, CEO of VMware, says: “VMware has been reshaping the IT landscape for the past 24 years, helping our customers become digital businesses.
“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.”
According to Reuters, the agreement is a coup for Dell Technologies chief executive Michael Dell, who spun VMware out of the computer maker last year.
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 favour of the deal, it adds.
Says Dell in a statement: “Together with Broadcom, VMware will be even better positioned to deliver valuable, innovative solutions to even more of the world's largest enterprises. This is a landmark moment for VMware and provides our shareholders and employees with the opportunity to participate in meaningful upside.”
The transaction is expected to add approximately $8.5 billion of pro forma EBITDA from the acquisition within three years post-closing.
Pro forma for each company's fiscal year 2021, software revenue is expected to account for approximately 49% of total Broadcom revenue.
Under the terms of the agreement, which has been unanimously approved by the boards of directors of both companies, VMware shareholders will elect to receive either $142.50 in cash or 0.2520 shares of Broadcom common stock for each VMware share.
The shareholder election will be subject to proration, resulting in approximately 50% of VMware's shares being exchanged for cash consideration and 50% being exchanged for Broadcom common stock.
Based on the closing price of Broadcom common stock on 25 May, the total $138.23 per-share consideration represents a 44% premium to the closing price of VMware common stock on 20 May, the last trading day prior to media speculation regarding a potential transaction, and a 32% premium to VMware's unaffected 30-day volume weighted average price.
Upon closing of the transaction, based on the outstanding shares of each company as of the date hereof, current Broadcom shareholders will own approximately 88% and current VMware shareholders will own approximately 12% of the combined company on a fully diluted basis.