Broadcom buying VMware for $61B

Deal is a big bet on the 'complex multi-cloud era,' companies stated

Computer chip and software giant Broadcom will dole out $61 billion to acquire all outstanding shares of cloud technology firm VMware in a cash and stock transaction. 

Broadcom wants to establish a stronger foothold in the cloud computing market and VMware's technology allows large corporations to blend public cloud access with internal company networks.

Ticker Security Last Change Change %
AVGO BROADCOM INC. 487.87 -10.58 -2.12%
VMW VMWARE INC. 114.72 -1.01 -0.87%

Under the terms of the agreement, which has been unanimously approved by both companies' boards of directors, VMware shareholders can choose to receive either $142.50 in cash or 0.2520 shares of Broadcom common stock for each VMware share. Each shareholder's election will be subject to proration, resulting in approximately 50% of VMware's shares being exchanged for cash consideration and 50% being exchanged for Broadcom common stock.

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Upon closing of the transaction, Broadcom Software group will rebrand and operate as VMware. In addition, Broadcom will assume $8 billion of VMware net debt. Current Broadcom shareholders will own approximately 88% of the combined company on a full diluted basis, while VMware shareholders will own approximately 12%. 

"VMware has long been recognized for its enterprise software leadership, and through this transaction we will provide customers worldwide with the next generation of infrastructure software," Broadcom Software Group president Tom Krause said in a statement. "VMware's platform and Broadcom's infrastructure software solutions address different but important enterprise needs, and the combined company will be able to serve them more effectively and securely. We have deep respect for VMware's customer focus and innovation track record, and look forward to bringing together our two organizations."

VMware chairman Michael Dell and private equity firm Silver Lake have signed support agreements to vote in favor of the transaction, so long as the VMware Board continues to recommend the proposed transaction with Broadcom. Dell owns 40.2% of the VMware's outstanding shares, while Silver Lake owns 10%. 

"Together with Broadcom, VMware will be even better positioned to deliver valuable, innovative solutions to even more of the world's largest enterprises," Dell said in a statement. "This is a landmark moment for VMware and provides our shareholders and employees with the opportunity to participate in meaningful upside."

Ticker Security Last Change Change %
DELL DELL TECHNOLOGIES INC. 47.70 -1.24 -2.53%

Dell Technologies completed the spin-off of its 81% equity ownership of VMware Inc. in November.

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The transaction is expected to be completed in Broadcom's fiscal year 2023, subject to VMware shareholder and regulatory approval and satisfaction of other customary closing conditions. 

To help finance the transaction, Broadcom has obtained commitments from a consortium of banks for $32 billion in new, fully committed debt financing.

The deal includes a "go-shop" provision, so VMware is allowed to actively solicit, receive, evaluate and potentially enter negotiations with parties that offer alternative proposals during a 40-day period.

The Associated Press contributed to this report.