Broadcom to acquire VMware for $61 billion, Broadcom Software Group to rebrand and operate as VMware

VMware, as part of Broadcom, aims at offering enterprise customers greater choice and flexibility to address IT infrastructure challenges

Broadcom and VMware announced an agreement under which the former 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 25 May 2022. In addition, Broadcom will assume $8 billion of VMware net debt. 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.

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."

By bringing together the complementary Broadcom Software portfolio with the leading VMware platform, 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. The combined solutions will enable customers, including leaders in all industry verticals, greater choice and flexibility to build, run, manage, connect and protect applications at scale across diversified, distributed environments, regardless of where they run: from the data center, to any cloud and to edge-computing. With the combined company's shared focus on technology innovation and significant research and development expenditures, Broadcom will deliver compelling benefits for customers and partners.

Raghu Raghuram, chief executive officer of VMware, said: “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.”

Important Details of the Broadcom VMWare Agreement 

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 2022, the total $138.23 per-share consideration represents a 44% premium to the closing price of VMware common stock on 20 May 2022, 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 (VWAP). 

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.

Michael Dell and Silver Lake, which own 40.2% and 10% of VMware shares outstanding, respectively, have signed support agreements to vote in favor of the transaction, so long as the VMware Board continues to recommend the proposed transaction with Broadcom. In connection with the transaction, Broadcom obtained commitments from a consortium of banks for $32 billion in new, fully committed debt financing.

Broadcom expects to maintain its current dividend policy of delivering 50% of its prior fiscal year free cash flow to shareholders. Broadcom expects to maintain an investment grade rating, given its strong cash flow generation and intention to rapidly de-lever.

Industry Reactions on the Broadcom VMWare Acquisition

“Broadcom is looking for avenues outside of its traditional semiconductor business and into enterprise software. The semiconductor market has been hard hit by the pandemic with materials and shipping supply issues and combined, with flattening growth as semiconductors start to reach their performance and innovation is at smaller and smaller increments due to actual physics constraints could be leading the chip maker to look at other areas for expansion. VMware is a main player in enterprise software and especially wins with its management products (vRealize management suite and CloudHealth). These products in VMware’s portfolio have seen tremendous growth year over year and continues to far exceed its competition,” said Tracy Woo, senior analyst at Forrester. 

On the other hand, Naveen Chhabra, senior analyst at Forrester, said: “This could have implications for VMware customers as its recent spinoff from Dell was seen as the company’s chance to innovate and grow without hindrance. If Broadcom plans to enter the enterprise software market it could be a boon into a new area that it doesn’t have much presence for outside of CA Technologies. It could extract some functionality from VMware’s portfolio to pad CA’s product capabilities.”