Broadcom is on the cusp of finalizing its monumental $61 billion acquisition of VMware. This acquisition, following in the footsteps of the Dell/EMC ($67 billion) and Microsoft/Activision Blizzard ($68.7 billion) takeovers, holds profound implications for both companies and the IT industry at large.
Broadcom’s journey toward this historic acquisition commenced in May 2022 when it announced its intention to acquire VMware, a market leader in virtualization software. The semiconductor juggernaut has signaled its intent to wrap up the deal during fiscal 2023, utilizing a financing structure that combines cash and Broadcom shares in a 50/50 split.
Under the terms of the agreement, VMware shareholders are poised to receive $142.50 in cash or 0.2520 Broadcom shares for each VMware share they hold. Notably, this offer represents a 44% premium over VMware’s share price as of May 20, the date when the deal was first reported in the media, and a 32% increase over VMware’s weighted average 30-day share price (VWAP). In terms of value, the Broadcom-VMware deal closely trails the reigning record-holders: Dell and EMC at $67 billion and Microsoft’s acquisition of Activision Blizzard at $68.7 billion. Some sources even estimate the deal’s value at $69 billion when considering an additional $8 billion in net VMware debt to be assumed by Broadcom.
The confidence and commitment of Broadcom to see this deal to fruition were underscored in a statement released on October 30. Broadcom assured investors that the agreement with VMware would be concluded promptly, with the deadline set for November 26. This assurance comes amidst concerns of potential delays due to regulatory hurdles, particularly those associated with Chinese regulators.
While Chinese regulatory approval remains the final significant hurdle to clear, Broadcom has already secured the green light from regulators in the EU, the UK, and various other countries. However, recent reports suggest that Chinese antitrust regulators might take additional time to approve the deal, partly due to the tightening of U.S. sanctions on chip exports. In response, VMware’s stock temporarily dipped below the deal offer.
The significance of this deal extends beyond its sheer magnitude. Broadcom’s acquisition of VMware is poised to reshape the company’s future, fortifying its presence in the networking and storage market while significantly boosting its software business. It is part of Broadcom’s continued strategy to diversify and expand, a journey that has seen the company acquire key assets in recent years.
In 2018, Broadcom, a pivotal supplier of wireless chips for Apple devices, acquired security and database vendor CA Technologies for $18.9 billion. In 2019, it purchased Symantec’s business for $10.7 billion and subsequently resold it to Accenture in a transaction whose value remained undisclosed.
Additionally, Broadcom made multiple attempts to acquire its rival, Qualcomm, although the deal was ultimately blocked by then-President Donald Trump due to concerns over potential national security risks. As the industry awaits the outcome of this historic deal, the reverberations will likely extend far beyond the balance sheets of Broadcom and VMware, potentially reshaping the IT landscape for years to come.
