$61bn Broadcom deal puts VMware up for auction

$61bn Broadcom deal puts VMware up for auction

Business news |
By Nick Flaherty

Fabless chip designer Broadcom is extending its move into software with a plan to buy cloud software giant VMWare for $61bn. However the potentially deal puts VMWare up for auction.

Broadcom saw revenues up 23% in the last six months on the back of the chip shortage to $8.1bn and expects full year revenues over $40bn. Half that revenue is from software, as Broadcom looks to more vertical integration. It bought Computer Associates back in 2018 to form its software group which will be rebranded as VMware.

VMware (formerly Dell-EMC) makes enterprise software and pioneered virtualisation, making use of hooks in hardware. It was spun off from Dell Technologies in 2021 and was led by Pat Gelsinger from 2012 to 2021 when he returned to take over Intel. The VMware’s multi-cloud portfolio cover application modernization, cloud management, cloud infrastructure, networking and security.

Broadcom will acquire all of the outstanding shares of VMware in a cash-and-stock transaction that values VMware at approximately $61 billion, based on the closing price of Broadcom common stock on May 25, 2022. Broadcom will also take on $8bn of VMware net debt.

Despite the agreement of both boards, the merger agreement provides for a “go-shop” provision under which VMware and its board may actively solicit, receive, evaluate and potentially enter negotiations with other parties in the next 40 days.

“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,” said Hock Tan, President and Chief Executive Officer of Broadcom (above). He was chief executive of Avago, which acquired Broadcom in 2015 and LSI Logic in 2014.

“VMware has been reshaping the IT landscape for the past 24 years, helping our customers become digital businesses,” said Raghu Raghuram, Chief Executive Officer of VMware. “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.”

“Together with Broadcom, VMware will be even better positioned to deliver valuable, innovative solutions to even more of the world’s largest enterprises,” said Michael Dell, Chairman of the VMware Board who owns 40% of the company. “This is a landmark moment for VMware and provides our shareholders and employees with the opportunity to participate in meaningful upside.”

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