Chipmaker Broadcom puts $ 61 billion on the table for cloud specialist VMware

Computer chip and software company Broadcom acquires cloud computing specialist VMware. The agreement between the two California companies is one of the largest ever in the technology sector.

It’s the chip maker’s biggest and most daring bid to diversify its business into enterprise software. The deal is the second-highest announced this year, following Microsoft’s $ 68.7 billion acquisition of video game maker Activision Blizzard.

The essence

  • Chipmaker Broadcom buys $ 61 billion in cash and shares in VMware. That company may still be looking for higher bids.
  • Broadcom sees data centers as a fast-growing market. VMware’s software for that market seems to be a useful addition.
  • There is concern about the future of innovation at VMware. Broadcom is not exactly the largest investor in research and development.

Broadcom’s $ 142.50 per VMware share is down about 44 percent from its closing price on May 20, just before trade talks were first reported. broadcom

will also include $ 8 billion of VMware’s net debt

to take over.

Broadcom was promised $ 32 billion in debt financing from a banking consortium. The deal is in cash and in stock. VMware still has the right to look for better deals.

takeover machine

CEO Hock Tan built Broadcom into one of the world’s largest chip manufacturers through acquisitions. Now he is applying his acquisition expertise to the software sector.
In one fell swoop, the deal will nearly triple Broadcom’s software-related revenue to about 45 percent of total revenue.



CEO Hock Tan built Broadcom into one of the world’s largest chip manufacturers through acquisitions. Now he is applying his acquisition expertise to the software sector.

The deal is a success for Michael Dell, CEO of Dell Technologies, who last year spun VMware out of the computer maker. Michael Dell owns 40 percent of the shares in VMware, while his financier Silver Lake, a private equity player, owns 10 percent.

Broadcom was already trying to hook a fat fish in 2018. It then wanted to take over the mobile chip giant Qualcomm. It was blocked by former US President Donald Trump for reasons of national security. There were concerns about Broadcom’s ties to China and to the Chinese electronics company Huawei. Broadcom was then headquartered in Singapore, but has since moved to San Jose, California, not far from VMware’s Palo Alto headquarters.

40%

Good luck with the Dell boss

The deal is a success for Michael Dell, CEO of Dell Technologies, who last year spun VMware out of the computer maker. He has a 40 percent stake in VMware.

Broadcom then turned to software. It bought enterprise software company CA Technologies for $ 18.9 billion and Symantec’s security division for $ 10.7 billion. It also investigated the acquisition of the analysis software company SAS Institute, but fell through with a bid. Broadcom drastically reduced the costs of the acquired companies.

Bad warning

VMware is dominant in the so-called virtualization software market, allowing enterprise customers to run multiple applications on their servers.



Broadcom is not known for large investments in research and development.

Keith Townsend

Analyst at the consulting firm CTO Advisor

That activity begins to wane as companies have found new tools to work through cloud computing. VMware had to look for new products, including through a partnership with Amazon.com.

Broadcom is not known for large investments in research and development, says Keith Townsend, analyst at consulting firm CTO Advisor. It could bode well for new product launches at VMware, added Townsend, who briefly worked at VMware as a data center architect. “The customers I talk to desperately need innovation from companies like VMware,” he noted.

Broadcom, for its part, sells components for a wide range of products, from iPhones to industrial machines. But data centers are among the strongest growth sectors for the company. VMware software can help conquer this market further.

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