Broadcom Inc. biggest and boldest bid came on 26th May 2022 to acquire cloud computing company VMware Inc in a $61 billion cash-and stock deal to diversify its business into enterprise software.
After Microsoft Corp’s $68.7 billion deal to buy video game maker Activision Blizzard Inc this is the second biggest acquisition announced globally so far this year.
The offer of $142.50 in cash or 0.2520 of a Broadcom share for each VMware stock represents a premium of nearly 49% to the stock’s last close before talks of the deal were first reported on May 22. Broadcom will also assume $8 billion of VMware’s net debt. The chipmaker’s shares closed up 3.5% and VMware rose 3.1%.
Broadcom will become as a major software player with the acquisition of VMware, and it is projeted to almost triple the Broadcom’s software-related revenue to about 45% of its total sales.
“Having something like VMware … will have a significant number of doors open that their current portfolio doesn’t open for them,” Newman added.
“The Federal Trade Commission (FTC) could be concerned Broadcom will use the acquisition to potentially bundle services or raise prices,” Josh White, assistant professor of finance at Vanderbilt University, said.
“Ultimately, the FTC will want to understand if this consolidation would impact overall competition and prices, especially in this inflationary environment,” White, also a former financial economist for the Securities and Exchange Commission, said.
The agreement is also a coup for Dell Technologies Inc Chief Executive Michael Dell, who spun VMware out of the computer maker last year.
Michael Dell owns a 40% stake in VMware, while his financial backer Silver Lake, a private equity firm, owns 10%. They have both agreed to vote in favor of the deal.
Broadcom has already got commitments from a consortium of banks for $32 billion in debt funding. VMware, which said the offer was unsolicited, will be allowed to solicit offers from rival bidders for 40 days as part of the agreement.
If VMware picks another offer after this time lapses, the firm will have to pay Broadcom $1.5 billion as break-up fee.
However, if it decides to pick another offer before this period ends, a termination fee of $750 million must be paid.
Broadcom’s board also authorized a new share repurchase program of up to $10 billion.