Broadcom Buys VMware for $61B
May 26, 2022
and VMware inked an agreement under which Broadcom will acquire all of the
outstanding shares of VMware in a cash-and-stock transaction that values VMware
at approximately $61 billion, based on the closing price of Broadcom common
stock on May 25, 2022. In addition, Broadcom will assume $8 billion of VMware
VMware, a leading provider of multi-cloud services for all apps, pioneered
virtualization technology, an innovation that positively transformed x86
server-based computing. VMware then created the software-defined data center and
played a leading role in virtualizing networking and storage, before evolving to
become a hybrid cloud and digital workspace leader. Today, VMware's multi-cloud
portfolio, spanning application modernization, cloud management, cloud
infrastructure, networking, security and anywhere workspaces, forms a flexible,
consistent digital foundation on which the largest and most dynamic enterprises
across industries build, run, manage, connect and protect their most important
and complex workloads for the benefit of their customers.
Following the closing of the transaction, the Broadcom Software Group will
rebrand and operate as VMware, incorporating Broadcom's existing infrastructure
and security software solutions as part of an expanded VMware portfolio.
By bringing together the complementary Broadcom Software portfolio with the
leading VMware platform, the combined company will provide enterprise customers
an expanded platform of critical infrastructure solutions to accelerate
innovation and address the most complex information technology infrastructure
needs. The combined solutions will enable customers, including leaders in all
industry verticals, greater choice and flexibility to build, run, manage,
connect and protect applications at scale across diversified, distributed
environments, regardless of where they run: from the data center, to any cloud
and to edge-computing. With the combined company's shared focus on technology
innovation and significant research and development expenditures, Broadcom will
deliver compelling benefits for customers and partners.
Hock Tan, President and Chief Executive Officer of Broadcom, said, "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. 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."
Raghu Raghuram, Chief Executive Officer of VMware, said, "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. Combining our assets and talented team with
Broadcom's existing enterprise software portfolio, all housed under the VMware
brand, creates a remarkable enterprise software player. Collectively, we will
deliver even more choice, value and innovation to customers, enabling them to
thrive in this increasingly complex multi-cloud era."
Tom Krause, President of the Broadcom Software Group, said, "VMware has long
been recognized for its enterprise software leadership, and through this
transaction we will provide customers worldwide with the next generation of
infrastructure software. VMware's platform and Broadcom's infrastructure
software solutions address different but important enterprise needs, and the
combined company will be able to serve them more effectively and securely. We
have deep respect for VMware's customer focus and innovation track record, and
look forward to bringing together our two organizations."
Michael Dell, Chairman of the VMware Board, said, "Together with Broadcom,
VMware will be even better positioned to deliver valuable, innovative solutions
to even more of the world's largest enterprises. This is a landmark moment for
VMware and provides our shareholders and employees with the opportunity to
participate in meaningful upside."
The transaction is expected to add approximately $8.5 billion of pro forma
EBITDA from the acquisition within three years post-closing. Pro forma for each
company's fiscal year 2021, software revenue is expected to account for
approximately 49% of total Broadcom revenue.
Transaction Details and Path to Completion
Under the terms of the agreement, which has been unanimously
approved by the boards of directors of both companies, VMware shareholders will
elect to receive either $142.50 in cash or 0.2520 shares of Broadcom common
stock for each VMware share. The shareholder election will be subject to
proration, resulting in approximately 50% of VMware's shares being exchanged for
cash consideration and 50% being exchanged for Broadcom common stock. Based on
the closing price of Broadcom common stock on May 25, 2022, the total $138.23
per-share consideration represents a 44% premium to the closing price of VMware
common stock on May 20, 2022, the last trading day prior to media speculation
regarding a potential transaction, and a 32% premium to VMware's unaffected
30-day volume weighted average price (VWAP). Upon closing of the transaction,
based on the outstanding shares of each company as of the date hereof, current
Broadcom shareholders will own approximately 88% and current VMware shareholders
will own approximately 12% of the combined company on a fully diluted basis.
Michael Dell and Silver Lake, which own 40.2% and 10% of VMware shares
outstanding, respectively, have signed support agreements to vote in favor of
the transaction, so long as the VMware Board continues to recommend the proposed
transaction with Broadcom.
In connection with the transaction, Broadcom obtained commitments from a
consortium of banks for $32 billion in new, fully committed debt financing.
Broadcom expects to maintain its current dividend policy of delivering 50% of
its prior fiscal year free cash flow to shareholders. Broadcom expects to
maintain an investment grade rating, given its strong cash flow generation and
intention to rapidly de-lever.
The transaction, which is expected to be completed in Broadcom's fiscal year
2023, is subject to the receipt of regulatory approvals and other customary
closing conditions, including approval by VMware shareholders.
The merger agreement provides for a "go-shop" provision under which VMware and
its Board of Directors may actively solicit, receive, evaluate and potentially
enter negotiations with parties that offer alternative proposals during a 40-day
period following the execution date of the definitive agreement, expiring at
11:59 p.m. Pacific Time on July 5, 2022. There can be no assurance this process
will result in a superior proposal. VMware does not intend to disclose
developments about this process unless and until its Board of Directors has made
a decision with respect to any potential superior proposal.
Broadcom Second Quarter 2022 Results and Third Quarter Fiscal Year 2022 Business
In a separate press release issued today, Broadcom reported results for its
second quarter of fiscal year 2022, ended May 1, 2022, and provided guidance for
the third quarter of its fiscal year 2022.
Broadcom Board of Directors also has authorized a new share repurchase program
to repurchase up to $10 billion of its common stock through December 31, 2023.
This new share repurchase authorization is in addition to the share repurchase
program authorized in December 2021, under which Broadcom may repurchase the
current remaining $3 billion of common stock through December 31, 2022.
Repurchases under the new share repurchase authorization may be made through a
variety of methods, including open market or privately negotiated purchases. The
timing and amount of shares repurchased will depend on the stock price, business
and market conditions, corporate and regulatory requirements, alternative
investment opportunities, acquisition opportunities and other factors. Broadcom
is not obligated to repurchase any specific amount of shares of common stock,
and the share repurchase program may be suspended or terminated at any time.
Barclays Capital Inc., BofA Securities, Inc., Citigroup Global Markets Inc.,
Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC and Wells Fargo
Securities, LLC are serving as financial advisors to Broadcom. Wachtell, Lipton,
Rosen & Katz and O'Melveny & Myers LLP are serving as legal counsel to Broadcom,
and Cleary Gottlieb Steen & Hamilton LLP is serving as regulatory counsel.
Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC are serving as financial
advisors to VMware, and Gibson, Dunn & Crutcher LLP is serving as legal counsel.