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Broadcom swoops for VMware in $61 billion deal

Chip and component manufacturer Broadcom has agreed to pay a whopping $61 billion a cash and stock transaction for cloud services firm VMware, and will also assume $8 billion of its net debt.

Following the transaction the firm intends to rebrand the Broadcom Software Group division as VMware, incorporating its existing infrastructure and security software portfolio into VMware’s platform. It’s being pitched as a move that will provide a larger presence and a wider set of software services for data centre, cloud and edge products. VMware is a major player so it would seem certain to do that.

The transaction is apparently expected to add approximately $8.5 billion of pro forma EBITDA from the acquisition within three years. And Broadcom is expecting a bump in terms of the proportion software puts into the pot following the creation of the new mega-division, bringing it up to approximately 49% of the firm’s total revenue.

“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 Hock Tan, President and CEO of Broadcom. “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.”

Raghu Raghuram, Chief Executive Officer of VMware added: “VMware has been reshaping the IT landscape for the past 24 years, helping our customers become digital businesses. We stand for innovation and unwavering support of our customers and their most important business operations and now we are extending our commitment to exceptional service and innovation by becoming the new software platform for Broadcom.

“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. Collectively, we will deliver even more choice, value and innovation to customers, enabling them to thrive in this increasingly complex multi-cloud era.”

Of course the huge $61 billion transaction, which Broadcom says it expects to be completed in 2023, is subject to regulatory approvals as well as the green light from VMware shareholders. The US government has stomped all over its big acquisition plans in the past.

In 2018 it finally threw in the towel on an attempted purchase of Qualcomm, which would have involved it taking on $106 billion of debt, when the President Trump intervened with an executive order on the grounds of national security, which effectively made it impossible.

However later that year it was able to console itself with the purchase of software company CA Technologies for a less eye watering but still gargantuan $18.9 billion deal. The deal with VMware falls somewhere between the two in terms of sheer expenditure, so it remains to be seen which way regulators will go and whether they conclude this is in the best interest of the market and the US as a whole.

 

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