Computer chip and software maker Broadcom will spend about $61 billion to acquire cloud technology company VMware, one of the biggest deals of the year despite an environment of rising inflation and economic uncertainty.
The proposed deal comes just weeks after billionaire and Tesla CEO Elon Musk offered to spend $44 billion on Twitter and is second in size this year only to the nearly $70 billion acquisition of Microsoft. from Activision Blizzard, the creator of Candy Crush and Call of Duty.
The massive purchases are coming at a time of heightened anxiety due to global supply chain turmoil, war in Europe and rising prices that have the potential to chill both business and consumer activity.
But that uncertainty has also created opportunities for companies like Broadcom. The tech-heavy Nasdaq is down more than 26% this year. On one day this week, social media companies About $130 billion in market value was wiped out due to growing questions about advertiser spending.
With the perceived value of tech companies on the decline, at least for now, more buyouts with specific companies that appear relatively cheap could be on the way.
And Broadcom CEO Hock Tan has been among the most aggressive buyers, strengthening the company with big acquisitions in recent years, including Symantec. for about $11 billion in 2019, and CA Technologies for about $19 billion the year before.
Broadcom wants to establish a stronger position in the cloud computing market, and VMware’s technology enables large corporations to combine public cloud access with internal company networks. VMware has close relationships with all major cloud companies and providers, including Amazon, Google, and Microsoft.
“VMware’s platform and Broadcom’s infrastructure software solutions address different but important business needs, and the combined company will be able to serve them more effectively and more securely,” said Tom Krause, president of Broadcom Software Group, in a statement prepared on Tuesday. Thursday.
Broadcom Software Group will rebrand and operate as VMware once the transaction closes. The cash and stock deal also includes $8 billion of net debt from VMware.
Under the proposed offer, VMware shareholders can elect to receive $142.50 in cash or 0.2520 shares of Broadcom common stock for each share of VMware.
VMware is already among the moving parts of the tech sector this year, with Dell Technologies Inc. spinning off its 81% equity stake in the company just about 6 months ago. Michael Dell remains the chairman of VMware and owns 40.2% of the company’s outstanding shares.
“If Broadcom plans to enter the enterprise software market, it could be a boon in a new area where it doesn’t have much of a presence outside of CA Technologies,” wrote Tracy Woo, senior analyst at Forrester Research. “It could extract some functionality from the VMware portfolio to enhance the capabilities of CA’s product.”
Dell and Silver Lake, which owns 10% of VMware’s outstanding shares, have signed support agreements to vote in favor of the transaction, provided VMware’s board of directors continues to recommend the proposed deal.
The transaction includes a “go to buy” provision whereby VMware may solicit, receive, evaluate and potentially enter into negotiations with parties offering alternative proposals over a 40-day period.
To help finance the transaction, Broadcom obtained commitments from a consortium of banks for $32 billion in new and fully committed debt financing.
It is anticipated that current Broadcom Inc. shareholders will own approximately 88% and current VMware shareholders will own approximately 12% of the combined company.
The boards of both California companies have approved the deal, which is expected to be completed in Broadcom’s fiscal year 2023. It still needs the approval of VMware shareholders.
Broadcom shares were up almost 2% at the opening bell, while VMware was up slightly.
/cloudfront-us-east-2.images.arcpublishing.com/reuters/GOQGQFXYFFIM7BLDRNMMFMA3QE.jpg)
