Broadcom to buy VMware

May 26, 2022
Should the deal go through, the Broadcom Software Group will change its name to VMware and include VMware’s products alongside the group’s current infrastructure and security software offerings.

Broadcom Inc. (NASDAQ: AVGO) plans to expand further via the acquisition of VMware, Inc. (NYSE: VMW). The two companies announced an agreement that would see Broadcom acquire all of the outstanding shares of virtualization software specialists VMware for approximately $61 billion in cash and stock. Broadcom also will assume $8 billion of VMware net debt as a result of the deal, which the parties expect will close during Broadcom’s fiscal year 2023, which will end October 29, 2023.

Consummation of the transaction is subject to the receipt of regulatory approvals and other customary closing conditions, including approval by VMware shareholders. The agreement contains a “go-shop” provision that enables VMware’s board of directors solicit and receive alternative purchase proposals for 40 days. That period expires at 11:59 PM Pacific Time July 5, 2022.

Should the deal go through, the Broadcom Software Group will change its name to VMware and include VMware’s products alongside the group’s current infrastructure and security software offerings. “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,” asserted Hock Tan, president and CEO of Broadcom. “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.”

Clearly, the deal would make software a much more significant part of Broadcom’s product and revenue mix. The company says it expects the addition of VMware to add approximately $8.5 billion of pro forma EBITDA within three years after the deal’s close. Pro forma for each company’s fiscal year 2021, software revenue is expected to account for approximately 49% of Broadcom’s total revenue post-close.

Terms of the deal

The purchase agreement calls for VMware shareholders to choose between $142.50 in cash or 0.2520 shares of Broadcom common stock for each share of VMware they own. However, this selection will be subject to proration so that Broadcom’s outlay will be evenly divided between cash and Broadcom shares. Upon the deal’s close, current Broadcom shareholders will own approximately 88% of the combined on a fully diluted basis.

Broadcom says it has obtained commitments from a consortium of banks for $32 billion in new, fully committed debt financing to back the transaction.

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