Broadcom strikes deal to acquire VMware for $61bn

The agreement will see Broadcom acquire all outstanding shares of VMware in a cash-and-stock transaction

Broadcom has reached an agreement to acquire VMware in a deal worth approximately $61bn.

The acquisition will see the chipmaker giant acquire all of the outstanding shares of VMware in a cash-and-stock transaction.

Reports of the deal surfaced earlier this week and was confirmed by the two companies in a statement on Thursday.

It is one of the biggest acquisitions to affect the channel since Dell acquired EMC in 2016 for $67bn.

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."

The transaction, which is expected to be completed in Broadcom's fiscal year 2023, is subject to the receipt of regulatory approvals and other customary closing conditions, including approval by VMware shareholders.

Following the closing of the deal, 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.

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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."

What are the terms of the deal?

The agreement was unanimously approved by the boards of directors of both companies.

It will see VMware shareholders 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 per cent of VMware's shares being exchanged for cash consideration and 50 per cent being exchanged for Broadcom common stock.

Meanwhile, Broadcom will acquire all of the outstanding shares of VMware in a cash-and-stock transaction that values VMware at approximately $61bn.

The chipmaker will also assume $8bn of VMware net debt.

Based on the closing price of Broadcom common stock on May 25, the total $138.23 per-share consideration represents a 44 per cent premium to the closing price of VMware common stock on May 20.

VMware board Chairman and Dell CEO Michael Dell and Silver Lake , who own 40.2 per cent and 10 per cent of VMware shares outstanding, signed support agreements to vote in favour of the transaction, so long as the VMware Board continues to recommend the proposed transaction with Broadcom.

Dell said: "Together with Broadcom, VMware will be even better positioned to deliver valuable, innovative solutions to even more of the world's largest enterprises. This is a landmark moment for VMware and provides our shareholders and employees with the opportunity to participate in meaningful upside."

The transaction is expected to add approximately $8.5bn of pro forma EBITDA from the acquisition within three years post-closing.