May 26 (Reuters) – Broadcom Inc (AVGO.O) announced on Thursday that it will acquire cloud computing company VMware Inc (VMW.N) in a $ 61 billion deal in cash and stocks, the most Great and bold chip maker to diversify your business. in enterprise software.
The acquisition is the second largest announced worldwide so far this year, just behind the $ 68.7 billion deal by Microsoft Corp. (MSFT.O) to buy video game maker Activision Blizzard Inc. ( ATVI.O).
Broadcom’s $ 142.50-per-share bid price for VMware represents a premium of nearly 49% until the last close of the shares, when talks on the deal were first reported on May 22. Broadcom will also take on $ 8 billion of VMware’s net debt.
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Shares of the chip maker were down nearly 1% in pre-market trading on Thursday, while VMware was up 1.3%.
Broadcom CEO Hock Tan, who turned his company into one of the world’s largest chip makers through acquisitions, is bringing his business handbook to the software industry.
In one fell swoop, the deal nearly tripled Broadcom’s software revenue to 45% of its total sales.
Broadcom will be instantly validated as a major software player with the acquisition of VMware, said Futurum Research analyst Daniel Newman.
“Having something like VMware … will have a significant number of open doors that your current portfolio probably won’t open,” Newman added.
The deal is also a coup for Dell Technologies Inc. (DELL.N) CEO Michael Dell, who took VMware out of the computer maker last year.
Michael Dell owns a 40% stake in VMware, while its financial sponsor Silver Lake, a privately held company, owns a 10% stake.
VMware may solicit bids from rival bidders for 40 days as part of the agreement.
Broadcom’s turn to software began after its attempt to acquire mobile chip giant Qualcomm Inc (QCOM.O) was blocked by former U.S. President Donald Trump in 2018 for national security reasons.
Broadcom has since taken over business software firm CA Technologies Inc. for $ 18.9 billion and acquired Symantec Corp.’s security division for $ 10.7 billion. He also explored the acquisition of analytics software company SAS Institute Inc, but did not continue with an offer.
Broadcom reduced the costs of the acquired companies. It reduced the sales and marketing budgets of CA and Symantec companies by approximately 29% of their revenue to 7%.
VMware dominates the so-called virtualization software marketplace, allowing corporate customers to run various applications on their servers.
This business has started to slow down as companies have found new tools to operate using cloud computing, which has prompted VMware to seek new deals, even through a partnership with Amazon.com Inc. (AMZN). O).
Broadcom does not have a track record of significant R&D spending, said Keith Townsend, an analyst at consulting firm CTO Advisor.
This could bode well for the launch of new products at VMware, added Townsend, who also took a brief step with VMware as a business data center architect.
“As I talk to customers, they desperately need innovation from companies like VMware.”
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Report by Chavi Mehta in Bangalore, Krystal Hu in New York and Jane Lanhee Lee in San Francisco; Edited by Aditya Soni and Shounak Dasgupta
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