US chip maker Broadcom continues its aggressive acquisition strategy, with the confirmation it is to acquire enterprise software giant VMware.

Earlier this week it was reported that Broadcom was in talks to acquire VMware, in a deal that was thought to be worth up to $50 billion (£40bn).

But on Thursday Broadcom confirmed an agreement to “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.”

VMware acquisition

As of Wednesday, VMware had a market value of nearly $52 billion, and under the terms of the acquisition, in addition to the $61 billion purchase price, Broadcom will also “assume $8 billion of VMware net debt.”

The purchase is the second-biggest acquisition globally so far in 2022, after Microsoft’s $68.7 billion buyout of video game maker Activision Blizzard in January this year.

VMware shareholders will get $142.50 per share under the purchase agreement, resulting in a premium of nearly 49 percent to the stock’s close on 22 May, when talks of the deal were first reported.

Following the closing of the transaction, the Broadcom Software Group will apparently rebrand itself and operate as VMware, incorporating Broadcom’s existing infrastructure and security software solutions as part of an expanded VMware portfolio.

It continues Broadcom’s transformation (via acquisitions) into a diversified technology company with holdings ranging from microprocessors to cloud infrastructure software.

Indeed, the chip maker said that by bringing together the Broadcom Software portfolio with the 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.”

“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,” said Broadcom president and CEO Hock Tan.

“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,” said Tan.

“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,” noted Raghu Raghuram, CEO of VMware.

Happy Michael?

“Together with Broadcom, VMware will be even better positioned to deliver valuable, innovative solutions to even more of the world’s largest enterprises,” added Michael Dell, chairman of the VMware board.

“This is a landmark moment for VMware and provides our shareholders and employees with the opportunity to participate in meaningful upside,” he said.

The deal represents a massive windfall for Michael Dell, who retained a large stake in the firm after spinning it out from Dell Technologies last year.

It should be remembered that Michael Dell had acquired VMware with Dell Technologies’ $67bn takeover of EMC in 2016, along with private equity firm Silver Lake.

The deal, one of the biggest in tech industry history, was largely financed by using VMware as collateral for more than $50bn in loans.

After the acquisition Dell kept about 19 percent of VMware public, and spun out the remaining 81 percent last year.

Michael Dell owns about 36 percent of VMware’s outstanding shares. Silver Lake is VMware’s second-biggest shareholder with a 10 percent stake.

There is no word of the exact amount of money VMware’s two largest shareholders will take home.

Acquisition strategy

The deal also bolsters Broadcom’s business software transformation, and comes after an aggressive acquisition strategy in recent years.

In 2016 for example Broadcom acquired fibre channel and storage area networking firm Brocade for $5.5 billion (£4.5bn).

Then in November 2017 Broadcom made an unsolicited $130 billion offer to acquire Qualcomm, but it lowered its takeover offer to $117bn, after Qualcomm raised its own bid for Dutch chip maker NXP Semiconductors NV to $44bn.

Broadcom’s attempted acquisition of Qualcomm was then blocked by the US Trump administration on national security grounds later in 2018.

But Broadcom did not take that setback lying down, and in 2018 it acquired IT veteran CA Technologies for $18.9 billion.

Then in 2019 Broadcom acquired Symantec’s security division for $10.7bn – although it quickly sold off the Symantec unit to Accenture in early 2020.

More rounded?

Industry experts were quick to offer insight in Broadcom’s acquisition of VMware, with Bola Rotibi, director, software development at CCS Insight saying the deal gives Broadcom a much more rounded infrastructure and cloud management story.

“VMware has a well-established footprint in data centres giving Broadcom a much stronger position – particularly with the developer community and at the developer operations level,” noted Rotibi. “However, acquiring VMWare doesn’t immediately transform Broadcom into a software company. This has significant integration risk and Broadcom must prove that it can integrate a silicon, software and services story.”

“Where other semiconductor companies have invested significantly in R&D to diversify, Broadcom is favoring a short cut to success through acquisition,” said Rotibi. “Whilst this will accelerate Broadcom’s software portfolio build out, its traditionally short term perspective and aversion to long term R&D raises significant question marks given the complexity of a silicon and services play.”

“Above all, enterprise customers value predictability, consistency and a commitment to a development roadmap,” said Rotibi. “Broadcom’s move will raise significant question marks for customers and will require careful management by all sides if this is to be a success”.

“This is further evidence that cloud players will not control everything,” said Rotibi. “Some companies still want to control their own solutions be that mainframe, storage, data centres and security as customers increasingly seek integrated capabilities from suppliers.”

Tom Jowitt

Tom Jowitt is a leading British tech freelancer and long standing contributor to Silicon UK. He is also a bit of a Lord of the Rings nut...

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