Computer chip and software maker Broadcom will spend about $61 billion to acquire cloud technology company VMware, one of the biggest deals of the year despite rising inflation and an environment of economic uncertainty.
The proposed deal comes just weeks after billionaire and Tesla CEO Elon Musk offered to spend $44 billion on Twitter and is second in size this year to Activision Blizzard, the creators of Candy Crush and Call of Duty. That’s after the acquisition for about $70 billion.
Mass buying is taking place at a time of great concern over turmoil on the global supply chain, war in Europe and rising prices, which have the potential to cool both business and consumer activity.
But that uncertainty has also created opportunities for companies like Broadcom. The tech-heavy Nasdaq is down more than 26% this year. In one day this week, social media companies had a market value of nearly $130 billion due to rising questions about advertiser spending.
With the perceived value of tech companies declining, at least for now, there may be more buying, with the target companies looking relatively cheap.
And Broadcom CEO Hock Tan has been among the most aggressive buyers, building the company up in recent years with major acquisitions such as Symantec for close to $11 billion in 2019, and CA Technologies for nearly $19 billion last year.
Broadcom wants to have a strong foothold in the cloud computing market and VMware’s technology allows large corporations to blend public cloud access with internal company networks. VMware has close ties with every major cloud company and provider, including Amazon, Google, and Microsoft.
“VMware’s platform and Broadcom’s infrastructure software solutions address different but important enterprise needs, and the combined company will help them more effectively and securely,” Tom Krause, president of Broadcom Software Group, said in a prepared statement Thursday. will be able to provide service.”
Broadcom Software Group will rebrand and operate as VMware after the transaction closes. The cash-and-stock deal also includes an $8 billion VMware net debt.
Under the proposed offer, VMware shareholders can choose to receive either $142.50 in cash or 0.2520 shares of Broadcom common stock for each VMware share.
VMware is already one of the moving parts of the tech sector this year, with Dell Technologies Inc staking its 81% equity stake in the company about 6 months ago. Michael Dell is still the president of VMware and owns 40.2% of the company’s outstanding shares.
“If Broadcom plans to enter the enterprise software market, it could be a boon in a new area that it doesn’t have much of a presence outside CA Technologies,” wrote Tracy Wu, senior analyst at Forrester Research. “It may remove some functionality from VMware’s portfolio to pad the product capabilities of CA.”
Dell and Silver Lake, which owns 10% of VMware’s outstanding stock, have signed endorsement agreements to vote in favor of the transaction, as long as VMware’s board continues to recommend the proposed deal.
The transaction includes a “go-shop” provision, therefore allowing VMware to actively negotiate, receive, evaluate, and potentially negotiate with parties that offer alternative offers during the 40-day period. Is.
To help finance the transaction, Broadcom has secured a commitment from a consortium of banks for $32 billion in new, fully committed debt financing.
It is estimated that current Broadcom Inc. shareholders will own approximately 88% and current VMware shareholders will own approximately 12% of the combined company.
The boards of both California companies have approved the deal, which Broadcom expects to complete in fiscal year 2023. It still requires approval from VMware shareholders.
Shares of Broadcom were up about 3% in afternoon trading, while VMware gained 2.5%.