Broadcom Acquires VMware in $61 Billion Enterprise Computing Deal

Broadcom, the semiconductor giant, said Thursday it has agreed to buy software company VMware in a $61 billion deal that will reorganize the vast market for corporate computing technology.

The deal, which will provide Broadcom with popular computing tools used by a wide range of companies, would be the world’s second largest proposed acquisition this year, following Microsoft’s $75 billion bid for video game company Activision Blizzard, according to data from Dealogic.

While the merger would make Broadcom an important player in data center technology and cloud computing, it’s hardly a joining of the household names, as is Elon Musk’s high-profile pursuit of Twitter. However, it is a reminder that tens of billions of dollars are spent each year in mergers of the many companies that make the technologies that underpin the Internet and large corporate computer networks.

The deal with Broadcom is the latest in a series of ownership changes to VMware, a leading software company that helped create some of the key technologies now commonly used in cloud computing. VMware has more than 500,000 customers around the world, 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. Broadcom will spend the equivalent of $138.23 per VMware share in the cash and stock transaction, it said in a statement. That’s 40 percent higher than VMware’s stock price before rumors of a deal started circulating last weekend.

VMware “provides plumbing for most of the world,” Gartner analyst Dennis Smith said in an interview. VMware helps manage more corporate information than the combined public clouds of Amazon, Microsoft, and Google — all of which have struggled to bring more of that data into their services, Mr. Smith said.

Mr. Tan was one of the chip industry’s most powerful acquisitions, holding 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 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.

In those deals, said Mr. Tan affiliates with well-established companies that are essential to corporate computer infrastructure. CA started decades ago by providing software for mainframe computers and has moved over the years into a range of products, while Symantec has made a name as a leader in cybersecurity tools.

Under the agreement, CA and Symantec will become part of VMware, which will be the new name for Broadcom’s software division. Whether Broadcom will give VMware decision autonomy is a “$61 billion question,” Mr. Smith said.

Broadcom said it would finance the deal with $32 billion in debt from several banks. The company said it plans to reduce its debt “quickly” after the deal. The chip maker followed a similar pattern in its recent software dealings, indulging in gluttons and then gnawing by prioritizing debt repayment.

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 has enhanced the role of software in data centers and revamped how organizations manage industrial computers. The concepts behind VMware’s technology were fundamental to cloud computing, which relies on virtualization.

VMware reported $12.9 billion in revenue for its most recent fiscal year, which ended on January 3. 28. This represents an increase of 9 per cent over 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 is 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, 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 were separated 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 groups with public investors because it has been struggling to compete with the latest cloud technology.

“They have been challenged as a company to adapt to this transformation,” Zelnick said.

This stagnation in inventory made VMware a more attractive target for Mr. Tan, and other possible wings. If shareholders and regulators agree to the deal, VMware’s long-awaited independence will come to an end.

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. Acquiring VMware might make sense for many other technology companies, including IBM and Intel.

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