Broadcom to acquire VMware for $69 billion

Chipmaker Broadcom has struck an agreement to buy software company VMware in a deal worth around $69 billion.

The transaction is made up of $61 billion in cash-and-stock and $8 billion in VMware net debt.

Following the acquisition, which is being supported by $32 billion in bank financing, the combined company will rebrand and operate as VMware, incorporating its existing infrastructure and security software solutions as part of an expanded VMware portfolio.

In its release, Broadcom said the acquisition will provide enterprise customers a widened platform of critical infrastructure solutions to accelerate innovation and address complex infrastructure needs.

The San Jose tech company added that the combined solutions will allow customers, including leaders an all industry verticals, “greater choice and flexibility” to securely build and manage applications at scale across diversified, distributed environments. The firm also said it intends to deliver “compelling” benefits for customers and partners.

According to the Financial Times, VMware’s stock price had fallen approximately half from its 2019 peak – and 20% below trade at the start of the year – before deal talks emerged. However, the FT said its high profit margins and stable recurring revenues offer the ability for Broadcom to finance a large takeover and then quickly pay down debt.

VMware shareholders will be able to choose to receive either $142.50 in cash or 0.2520 shares of its stock for each of their shares in the software group, Broadcom announced. Upon closing the transaction, its shareholders will own 88% and VMware shareholders will own 12% of the combined company.

Michael Dell and Silver Lake, which own 40.2% and 10% of VMware shares outstanding, respectively, have both given their approval of the deal.

Hock Tan, president and CEO of Broadcom, has “been on the hunt” for a software deal for quite some time, according to the FT, after his attempt to acquire chipmaker Qualcomm was denied in 2018 over national security concerns by then-President, Donald Trump.

“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 as we reimagine what we can deliver to customers as a leading infrastructure technology company,” Tan said.

Raghu Raghuram, CEO of VMware, added that combining its assets and “talented team” with Broadcom’s existing portfolio creates a “remarkable enterprise software player.”

The transaction, which is expected to be completed in 2023, is estimated to add $8.5 billion of pro forma EBITDA from the acquisition within three years post-closing.