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Broadcom Strikes $61B Cash-and-Stock Deal for VMware

Semiconductor company Broadcom (Nasdaq: AVGO) has agreed to acquire multicloud services provider VMware (NYSE: VMW) in a cash-and-stock transaction valued at approximately $61 billion as part of Broadcom’s strategy to establish a leading infrastructure technology company.

The boards of directors of both companies unanimously approved the deal that is expected to close in Broadcom’s fiscal year 2023, subject to VMware shareholders’ approval, regulatory clearances and other customary closing conditions, Broadcom said Thursday.

Upon the deal’s completion, Broadcom’s software group will undergo rebranding and operate as VMware, enabling the combined entity to provide enterprise clients with platforms meant to help them address information technology infrastructure challenges.

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.

Under the deal’s terms, VMware shareholders can elect to get $142.50 in cash or 0.2520 share of Broadcom common stock for each VMware share. Upon closing, Broadcom shareholders will own about 88 percent and VMware shareholders will own 12 percent of the combined entity.

The transaction includes the assumption of VMware’s net debt worth $8 billion. Broadcom secured commitments for $32 billion in new debt financing from a consortium of banks and expects to maintain its dividend policy of delivering to shareholders 50 percent of free cash flow from the previous fiscal year.

Broadcom expects the transaction to add about $8.5 billion of pro-forma earnings before interest, taxes, depreciation and amortization within three years post-closing.

In November 2021, Dell Technologies (NYSE: DELL) finished spinning off 81 percent of its equity ownership interest in VMware as part of efforts to establish two independent companies that will continue to co-develop critical platforms under a commercial agreement.

Michael Dell, chairman and CEO of Dell Technologies, and private equity partner Silver Lake, which own 40.2 percent and 10 percent, respectively, of VMware’s outstanding shares, have signed agreements to vote in favor of the deal.

The transaction includes a 40-day “go-shop” period that will allow VMware and its board to solicit and review alternative acquisition proposals.

Barclays Capital, BofA Securities, Citigroup Global Markets, Credit Suisse Securities (USA), Morgan Stanley & Co. and Wells Fargo Securities are serving as financial advisers to Broadcom. Wachtell, Lipton, Rosen & Katz and O’Melveny & Myers are acting as legal counsel to Broadcom. Cleary Gottlieb Steen & Hamilton serves as Broadcom’s regulatory counsel.

VMware’s financial advisers in the transaction are Goldman Sachs & Co. and J.P. Morgan Securities, while Gibson, Dunn & Crutcher acts as the company’s legal counsel.

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