Broadcom, the semiconductor giant, said Thursday it had agreed to buy software company VMware in a $ 61 billion transaction that would reorganize the broad enterprise computing technology market.
The deal, which would provide Broadcom with popular computer tools used by a large number of corporations, would be the world’s second largest proposed acquisition this year, following Microsoft’s $ 75 billion bid for the company. of Activision Blizzard video games, according to Dealogic data.
While the combination would make Broadcom a major player in data center technology and cloud computing, it’s not nearly a union of household names, as is Elon Musk’s high-profile Twitter search. It is a reminder, however, that tens of billions of dollars are spent each year on mergers between the many companies that manufacture the technologies that power the Internet and large corporate computer networks.
The Broadcom deal is the latest in a series of ownership changes for VMware, a pioneering software company that helped create some of the key technologies commonly used in cloud computing. VMware has more than 500,000 customers worldwide and partners with all major cloud vendors, including Amazon, Microsoft and Google.
This makes VMware a prized asset for Broadcom CEO Hock E. Tan. Broadcom will spend the equivalent of $ 138.23 per share for VMware on the cash and stock deal, it said in a statement. That’s more than 40 percent more than the price of VMware shares before rumors of a deal began circulating last weekend.
VMware “is providing plumbing to most of the world,” Gartner analyst Dennis Smith said in an interview. VMware software 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 to their services, Smith said.
Tan had been one of the most lucrative forces in the chip industry, joining Broadcom at the same time, until President Donald J. Trump blocked Broadcom’s $ 117 billion acquisition of Qualcomm chip maker in March. of 2018 for reasons of national security. Broadcom, which was headquartered in Singapore at the time, has moved its headquarters to San Jose, California.
Since then, Mr. So much has diversified their goals. It bought software company CA Technologies for $ 18.9 billion later in 2018 and a security division from Symantec for $ 10.7 billion in 2019.
In these agreements, Mr. So he pursued established companies that are essential to the corporate IT infrastructure. CA had started decades ago supplying software for mainframe computers and had moved over the years to a variety of products, while Symantec has made a name for itself 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 autonomy in decision-making is “the $ 61 billion issue,” Mr.
Broadcom said it would finance the deal with $ 32 billion in debt from numerous banks. The company said it planned to reduce its debt “quickly” after the transaction. The chip maker followed a similar pattern in its recent software transactions, and then digested itself by prioritizing debt payments.
With its so-called virtualization software, which allows a computer to act like many machines and essentially makes computing more efficient, VMware would be Broadcom’s flagship asset. VMware has enhanced the role of software in data centers and revamped the way organizations manage their industrial computers. The concepts behind VMware technology were fundamental to cloud computing, which relies on virtualization.
VMware posted $ 12.9 billion in revenue in its last fiscal year, which ended Jan. 28. This was an increase of 9 percent over the previous year. This growth rate was much slower than the cloud computing arms of Amazon, Microsoft, and Google. Founded in 1998, before the cloud boom, VMware relied on customers still operating their own 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 a director of operations, Sanjay Poonen, the same day. In November, the software maker became independent when it split from Dell Technologies.
Under Mr. Gelsinger, VMware was anxious to get out of the personal computer maker that owned most of its shares. Dell gained the stake by acquiring EMC, which was the former majority owner of VMware. VMware envisioned independence as a strategic benefit, enabling it to forge new alliances with a variety of technology vendors. She also believed that Wall Street would reward her with a higher stock price if it parted ways with Dell.
In contrast, the company’s shares fell 19 percent from the beginning of the year to Friday, the last trading day before Bloomberg reported broadcasts with Broadcom.
Brad Zelnick, an analyst at Deutsche Bank, said VMware had lost ground with public investors because it had struggled to compete with the latest cloud technology.
“They have been challenged as a company to adapt to this transition,” Zelnick said.
This drop in shares made VMware a more attractive target for Mr. So and potentially for other suitors. If shareholders and regulators approve the deal, the desired independence of VMware will end.
The terms of the Broadcom agreement include a “go-shop” period, which gives VMware management 40 days to look for a better deal from a different buyer. Acquiring VMware could make sense for other technology companies, such as IBM and Intel.