Broadcom and VMware reached a deal in which Broadcom will purchase all of VMware’s outstanding shares in a cash-and-stock new agreement that values VMware at about $61 billion, premised on the current share price of Broadcom common stock on May 25, 2022. Furthermore, Broadcom will take on $8 billion of VMware’s net debt.
The transaction would rank among the most significant corporate acquisitions in the history of the technology industry, coming in third after Microsoft’s upcoming $69 billion agreement to acquire Activision Blizzard and Dell’s $67 billion purchase of EMC in 2016.
Broadcom made $27.4 billion in revenue last year. Approximately 20,000 people work for corporations worldwide, with R & D accounting for 63% of them. The company competes with AMD, Cisco Systems, Nvidia, and Intel for market share by selling a wide range of semiconductors and infrastructure software.
Transaction Details and Path to Completion
VMware stockholders can choose between $142.50 in cash or 0.2520 shares of Broadcom common stock for each VMware share. Proration will result in the exchange of 50% of VMware’s shares for cash and 50% for Broadcom common stock.
The total consideration of $138.23 per share represents a 44% premium to VMware’s closing price on May 20, 2022, the last trading day before public speculation about a potential merger, and a 32% premium to VMware’s unaffected 30-day volume weighted average price (VWAP). Broadcom shareholders will own 88% of the combined company, while VMware shareholders will own 12%
Michael Dell and Silver Lake, which own 40.2% and 10% of VMware shares, respectively, have agreed to vote for the transaction if the VMware Board continues to approve it.
Broadcom Second Quarter 2022 Results and Third Quarter Fiscal Year 2022
Along with the completion of the acquisition, Broadcom published fiscal second-quarter numbers on Thursday that beat both the top and bottom lines. Broadcom’s adjusted quarterly earnings of $9.07 per share beat analysts’ projections of $8.70 per share. Refinitiv says revenue climbed 23% year over year to $8.1 billion, topping Wall Street’s $7.9 billion forecast. The company expects current-quarter sales of $8.4 billion, above average projections. Refinitiv analysts expected $8 billion in sales.
The deal is likely to go through in Broadcom’s fiscal year 2023, if regulators and VMware shareholders give their approval. The merger agreement includes a “go-shop” provision that allows VMware and its Board of Directors to actively seek, receive, evaluate, and potentially negotiate with parties that offer alternative proposals for 40 days following the execution date of the definitive agreement, until 11:59 p.m. Pacific Time on July 5, 2022.
There’s no guarantee this procedure will produce a better proposal. VMware won’t share process updates until its board decides on a possible better proposition.
Hock Tan, President and Chief Executive Officer of Broadcom, said,
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. 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, Chief Executive Officer of VMware, said,
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.