US chipmaker Broadcom has agreed to acquire cloud software company VMware for $69bn, including debt, a takeover that signals the market for large corporate mergers might be thawing after a stock market rout at the start of the year.
VMware shareholders will be able to choose to receive either $142.50 in cash or 0.2520 shares of Broadcom stock for each of their shares in the software group, at a 33 per cent premium over the value of the company before talks emerged last week.
The takeover, which is being supported with $32bn in bank financing, will help transform Broadcom, an acquisitive semiconductor group, into a diversified tech company ranging from chips to cloud computing services.
Hock Tan, the Malaysian-American billionaire who leads Broadcom, has been on the hunt for a software deal for years after his attempt to acquire chipmaker Qualcomm was blocked in 2018 by then US president Donald Trump over national security concerns.
“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,” Tan said.
In striking a deal for VMware, Tan, known as the chip industry’s arch consolidator, is opportunistically picking up one of the software industry’s most valuable and profitable companies.
VMware stock price had fallen about half from its 2019 peak — and 20 per cent below where it traded at the beginning of the year — before deal talks emerged. But VMware’s high profit margins and stable recurring revenues offer the ability for Broadcom to finance a large takeover and then quickly pay down debt.
If completed, the deal would further turn Broadcom into a diversified technology company, instead of one focused principally on semiconductors. Broadcom agreed to acquire cyber security group Symantec in 2019 for $10.7bn, propelling it into the software sector.
In VMware, Tan would acquire a company that has long been considered one of the cloud computing industry’s most important groups. Its services are used by large corporations to manage private and public cloud networks as well as data centres.
Broadcom’s acquisition would also provide a big financial payout for personal computer billionaire Michael Dell, who acquired VMware in 2016 alongside private equity firm Silver Lake in a $67bn takeover of technology conglomerate EMC.
Dell, who is chair of VMware, owns about 40 per cent of the company’s outstanding shares, a stake worth about $24.5bn under the terms of the takeover agreement.