Broadcom Acquires VMware in $61 Billion Enterprise Computing Deal
Broadcom, the semiconductor giant, said Thursday it had agreed to buy software company VMware in a $61 billion deal. The deal will provide Broadcom with common computing tools used by a large segment of companies and modify the broad market for enterprise computing technology.
The company said in a statement that the chip company will spend the equivalent of $138.23 per VMware share in the cash and stock transaction. That’s 40 percent higher than VMware’s stock price before rumors of a deal started circulating over the weekend.
This merger will make Broadcom an important player in data center and cloud computing technology. It will also be the second largest proposed acquisition in the world this year, according to data from Dealogic. (Microsoft’s $75 billion bid for Activision Blizzard is the largest.) VMware has more than 500,000 customers worldwide, and is partners of all major cloud service providers, including Amazon, Microsoft, and Google. This makes VMware a valuable asset to Broadcom CEO, Hawk E Tan.
Mr. Tan was one of the chip industry’s most powerful acquisitions, tying Broadcom together one deal at a time, until President Donald J. Trump blocked Broadcom’s proposed $117 billion acquisition of chip maker Qualcomm in March 2018 on national security grounds. . Broadcom, which was headquartered in Singapore at the time, moved its headquarters to San Jose, California.
Since then, Mr. Tan has diversified his goals. It bought software company CA Technologies for $18.9 billion later in 2018 and Symantec’s security division for $10.7 billion in 2019.
With so-called virtualization software, which allows one computer to act like many and essentially makes computing more efficient, VMware will be Broadcom’s flagship asset. VMware reported $12.9 billion in revenue for its most recent fiscal year, which ended on January 28. That was a 9 percent increase from the previous year. This growth rate has been much slower than the cloud computing arms of Amazon, Microsoft and Google. Founded in 1998, before the cloud boom, VMware relied on customers who still managed their data centers.
The deal will be the latest in a series of major changes for VMware. The Palo Alto, California-based company lost its longtime CEO, Pat Gelsinger, to Intel in January 2021. On May 12, it gained a new CEO, Raghu Raghuram, and lost its chief operating officer, Sanjay Punin, in the same today. In November, the software maker became independent when it separated from Dell Technologies.
Under Mr. Gelsinger’s leadership, VMware has been eager to extricate itself from the majority-owned PC maker. Dell acquired the stake through its acquisition of EMC, which was the former majority owner of VMware. VMware envisions independence as a strategic advantage, allowing it to form new alliances with a variety of technology providers. I also thought Wall Street would reward it with a higher share price if it split from Dell.
Instead, the company’s shares were down 19 percent year-to-date through Friday, the last trading day before Bloomberg announced negotiations with Broadcom.
Brad Zelnick, an analyst at Deutsche Bank, said VMware has lost its luster with public investors as it struggled to compete with the latest cloud technology.
“They have been challenged as a company to adapt to this shift,” Mr. Zelnick said.
This slump in stock made VMware a more attractive target for Mr. Tan, and possibly other suitors. The terms of the deal with Broadcom include a “go-shop” period, which gives VMware management 40 days to search for a better offer from a different buyer. Getting VMware might make sense for many other technology companies, such as IBM or Intel.
If shareholders and regulators agree to the deal, VMware’s long-awaited independence will come to an end.