Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Chipmaker Broadcom to buy VMware in $61 billion deal

Stock Markets May 26, 2022 09:56PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. FILE PHOTO: The Broadcom Limited company logo is shown outside one of their office complexes in Irvine, California, U.S., March 4, 2021. REUTERS/Mike Blake/File Photo 2/2

By Chavi Mehta and Krystal Hu

(Reuters) - Broadcom (NASDAQ:AVGO) Inc said on Thursday it will acquire cloud computing company VMware (NYSE:VMW) Inc in a $61 billion cash-and stock deal, the chipmaker's biggest and boldest bid to diversify its business into enterprise software.

The acquisition is the second biggest announced globally so far this year, trailing only Microsoft Corp (NASDAQ:MSFT)'s $68.7 billion deal to buy video game maker Activision Blizzard Inc (NASDAQ:ATVI).

The offer of $142.50 in cash or 0.2520 of a Broadcom share for each VMware stock represents a premium of nearly 49% to the stock's last close before talks of the deal were first reported on May 22. Broadcom will also assume $8 billion of VMware's net debt.

The chipmaker's shares closed up 3.5% and VMware rose 3.1%.

Broadcom Chief Executive Hock Tan, who built his company into one of the world's biggest chipmakers through acquisitions, is now bringing his dealmaking playbook to the software sector.

In one fell swoop, the deal will almost triple Broadcom's software-related revenue to about 45% of its total sales.

Broadcom will instantly be validated as a major software player with the acquisition of VMware, Futurum Research analyst Daniel Newman said.

"Having something like VMware ... will have a significant number of doors open that their current portfolio probably doesn't open for them," Newman added.

The deal comes at a time when there is an increased push by the Biden administration for more competition in all sectors ranging from agriculture to technology.

"The Federal Trade Commission (FTC) could be concerned Broadcom will use the acquisition to potentially bundle services or raise prices," Josh White, assistant professor of finance at Vanderbilt University, said.

"Ultimately, the FTC will want to understand if this consolidation would impact overall competition and prices, especially in this inflationary environment," White, also a former financial economist for the Securities and Exchange Commission, said.

The agreement is also a coup for Dell Technologies (NYSE:DELL) Inc Chief Executive Michael Dell, who spun VMware out of the computer maker last year.

Michael Dell owns a 40% stake in VMware, while his financial backer Silver Lake, a private equity firm, owns 10%. They have both agreed to vote in favor of the deal.

Broadcom has already got commitments from a consortium of banks for $32 billion in debt funding. VMware, which said the offer was unsolicited, will be allowed to solicit offers from rival bidders for 40 days as part of the agreement.

If VMware picks another offer after this time lapses, the firm will have to pay Broadcom $1.5 billion as break-up fee.

However, if it decides to pick another offer before this period ends, a termination fee of $750 million must be paid.

Both the companies also reported quarterly results, with Broadcom forecasting better-than-expected revenue for the third quarter, while VMware suspended its full-year outlook due to the pending acquisition.

Broadcom's board also authorized a new share repurchase program of up to $10 billion.

BID TO DIVERSIFY

Broadcom's pivot into software started after its attempt to acquire mobile chip giant Qualcomm (NASDAQ:QCOM) Inc was blocked by former U.S. President Donald Trump in 2018 on national security grounds.

Since then Broadcom took over business software firm CA Technologies Inc for $18.9 billion and acquired Symantec Corp (NASDAQ:NLOK)'s security division for $10.7 billion. It also explored acquiring analytical software company SAS Institute Inc, but did not proceed with a bid.

Broadcom then went on to slash costs at the acquired businesses. It cut the sales and marketing budgets of the CA and Symantec businesses from about 29% of their revenue to 7%.

VMware is dominant in the so-called virtualization software market, that allows corporate customers to run multiple applications on their servers.

This business has started to slow as companies have found new tools to operate through cloud computing, pushing VMware to seek new offerings, including through a partnership with Amazon.com Inc (NASDAQ:AMZN).

Broadcom doesn't have a track record of spending big on research and development, Keith Townsend, analyst at advisory firm CTO Advisor, said.

This could bode poorly for the launch of new products at VMware, Townsend, who also had a brief stint with VMware as an enterprise data center architect, said.

"As I talk to customers, they're in desperate need for innovation from companies like VMware."

(Graphics: https://graphics.reuters.com/BROADCOM-STOCKS/gdvzyebrlpw/Pasted%20image%201653572246311.png)

Chipmaker Broadcom to buy VMware in $61 billion deal
 

Related Articles

Asian Stocks Up, Following Wall Street Gains
Asian Stocks Up, Following Wall Street Gains By Investing.com - Jun 26, 2022

By Zhang Mengying Investing.com – Asia Pacific stocks were up on Monday morning after Wall Street rebounded strongly at the end of last week despite fears of prolonged inflation...

Dow Futures Trade Lower After Positive Week
Dow Futures Trade Lower After Positive Week By Investing.com - Jun 26, 2022 8

By Oliver Gray  Investing.com - U.S. stock futures were trading lower during Sunday's evening deals, easing from a major rebound last week as investors monitored growing recession...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
Abdulaziz Ibrahim
Abdulaziz Ibrahim Jun 01, 2022 2:06PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
send me
Abdulaziz Ibrahim
Abdulaziz Ibrahim Jun 01, 2022 2:06PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
paypal
Kelvin Faustine
Kelvin Faustine May 26, 2022 7:13AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
opportunity to buy NYSE
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email