One of the largest tech deals in M&A history was announced last week. Chipmaker Broadcom entered into an agreement to acquire VMware for $69 billion in a cash or stock deal. Broadcom's acquisition of VMware will be reviewed by either the FTC or the DOJ, the Committee on Foreign Investment in the United States (CFIUS), & multiple international regulatory agencies.
Advances Broadcom’s strategy to build the world’s leading infrastructure technology company, with track record of acquiring established platforms. Brings together two engineering-first, innovation-centric cultures. Broadcom Software Group to rebrand & operate as VMware. The new VMware, as part of Broadcom, to offer enterprise customers greater choice & flexibility to address the most complex IT infrastructure challenges. Accelerates software scale and growth opportunities for Broadcom, with pro forma revenue of more than $40 billion, including 49% software revenue. Broadcom to target adding approximately $8.5 billion of pro forma EBITDA from the acquisition within three years post-closing.
One of the largest tech deals in M&A history was announced last week. Chipmaker Broadcom entered into an agreement to acquire VMware $VMW for $69 billion in a cash or stock deal, which includes $8 billion of VMware's net debt, that will be assumed by Broadcom $AVGO. VMware was spun off from Dell Technologies $DELL on November 1, 2021. VMware was founded in the year 1998 & later acquired by EMC in January 2004 & eventually ended up with Dell after EMC was acquired by Dell in a massive $67 billion deal in 2016.
Bloomberg previously reported that Broadcom was in talks to acquire VMware. VMW's price after this announcement was $119.43. When I first heard rumors of the deal, I dismissed it because of both the size of the deal & the likely regulatory challenges a deal with Broadcom would encounter. Broadcom's highly acquisitive CEO Hock Tan was blocked from acquiring Qualcomm $QCOM in a hostile $117 billion takeover when President Trump prohibited the deal on national security grounds. Broadcom's acquisition of VMware will be reviewed by either the FTC or the DOJ, the Committee on Foreign Investment in the United States (CFIUS) & multiple international regulatory agencies including China's State Administration for Market Regulation (SAMR).
According to the terms of the deal, VMware shareholders will be able to 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 & 50% being exchanged for Broadcom common stock. The deal also includes a 40 day "go-shop" provision during which VMware can solicit alternative proposals.
Michael Dell & Silver Lake, who own 40.2% & 10% of VMW, respectively, agreed to vote in favor of the transaction. According to the press release, both parties have agreed to a $1.5 billion termination fee, but VMware will only have to pay $750 million if it finds a superior offer by the July 5 deadline. The deal is expected to be completed in Broadcom's fiscal year 2023.
Following the closing of the transaction, the Broadcom Software Group will rebrand & operate as VMware, incorporating Broadcom’s existing infrastructure & security software solutions as part of an expanded VMware portfolio.