Broadcom Buying VMware for $61 Billion in 'Landmark Moment'

Chipmaker Broadcom is bolstering its software practice with the massive acquisition of VMware.

Broadcom announced on Thursday that it will buy all outstanding VMware shares in a stock-and-cash transaction totaling approximately $61 billion. The deal expands the depth of critical infrastructure solutions both companies can provide to enterprise customers. On the part of Broadcom, the company is heavily expanding its software portfolio. According to its latest earnings release, infrastructure software accounted for 23% of the company’s net revenue in the second quarter, compared to semiconductor solutions. The number will shift to 49% as a result of the acquisition, according to a news release from Broadcom.

VMware will keep its brand, incorporating the assets from the Broadcom Software Group. Broadcom has bought several software companies over the last five years, including Symantec and CA Technologies.

Through the deal, Broadcom will assume $8 billion in VMware net debt. The deal should finalize in Broadcom’s 2023 fiscal year, which begins on Oct. 31, 2022. The deal must meet regulatory and shareholder approval. A consortium of banks have committed $32 billion in debt financing for the transaction.

According to the deal, VMware shareholders can receive $142.50 in cash or 0.2520 Broadcom shares for every VMware share they own.

Broadcom’s Hock Tan

Broadcom’s ‘Proven Track Record’ of M&A

“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,” Broadcom CEO Hock Tan said. “We look forward to VMware’s talented team joining Broadcom, further cultivating a shared culture of innovation and driving even greater value for our combined stakeholders, including both sets of shareholders.”

Leading shareholders Michael Dell (who owns slightly more than 40% of VMware shares) and Silver Lake (10%) officially signed support agreements for the transaction.

Dell’s Michael Dell

“Together with Broadcom, VMware will be even better positioned to deliver valuable, innovative solutions to even more of the world’s largest enterprises,” said Dell, who serves as chair of the VMware board. “This is a landmark moment for VMware and provides our shareholders and employees with the opportunity to participate in meaningful upside.”

On the same day, Broadcom released its second-quarter earnings. The company reported 23% year-over-year growth in consolidated revenue and a 30% operating profit increase. Net revenue was $8.1 billion. In the meantime, Broadcom’s infrastructure software unit earned $1.9 billion in net revenue.

Analyst Reaction

Omdia’s Roy Illsley in an a comment to Channel Futures earlier this week described the potential deal as a financial play for Broadcom. He said on Thursday that the deal makes sense if Broadcom intends to build a “vertical stack of components from chip to app.” If so, the question comes down to how Broadcom will package and price its “full stack,” Illsley said.

Omdia’s Roy Illsley

“The big unknown here is, what is Broadcom’s end game? Why acquire old technology (Symantec, CA Technologies and VMware) instead of the new growth businesses? Is this about holding the legacy technology and milking it dry over the next 10-15 years, or do they see the technology roadshow shifting at some point in the future back to modified ways of how things are done today? By that I mean, containers are not new. Unix v7 in 1979 introduced the concept of isolation in the OS. So is Broadcom betting on VMs becoming the environment of choice in 10 years, albeit in a modified way? The answer is not simple. To me it looks like a simple acquisition of companies in transition by Broadcom because they are relatively cheap, but it does not appear to have a clear strategy for these technologies,” Illsley told Channel Futures.

Integration Plans

VMware CEO Raghu Raghuram said VMware’s assets and team will combine with the Broadcom software portfolio to make a “remarkable enterprise software player.”

VMware’s Raghu Raghuram

“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,” Raghuram said.