Broadcom Inc and VMware had recently announced an agreement under which Broadcom will acquire all of the outstanding shares of VMware in a cash-and-stock. Based on the closing price of Broadcom common stock on May 25, 2022, the transaction values VMware at approximately $61 billion. Broadcom will also take on $8 billion of VMware net debt.
After the transaction is completed, Broadcom Software Group will rebrand itself and operate as VMware. This includes using Broadcom’s existing software and solutions to expand VMware’s portfolio. The Broadcom Software portfolio and the VMware platform will work together to provide enterprise customers with a wider range of solutions that will help them speed up innovation and address their most complex information technology needs. The combined solutions will give these customers more choice and flexibility when it comes to building, running, managing, connecting, and protecting applications in a distributed and diversified environment. The combined company expects to deliver compelling benefits for customers and partners by focusing on technology innovation and significant research and development.
Hock Tan, President, and Chief Executive Officer of Broadcom said, “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. 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, said, “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.”
The transaction is expected to increase pro forma EBITDA by $8.5 billion within three years after the deal is completed. Pro forma for each company’s fiscal year 2021, software revenue will make up about 49% of Broadcom’s total revenue.
The boards of directors of both the companies have unanimously approved that VMware shareholders can choose to receive either $142.50 in cash or 0.2520 shares of Broadcom common stock for each VMware share. The shareholder election will be structured in such a manner that approximately 50% of VMware’s shares will be exchanged for cash consideration and 50% for Broadcom common stock. Calculated based on the closing price of Broadcom common stock on May 25, 2022, the total $138.23 per-share consideration amounts to a 44% premium to the closing price of VMware common stock on May 20, 2022, and a 32% premium to VMware’s unaffected 30-day volume weighted average price (VWAP). Based on the outstanding shares of each company as of the date hereof, when the transaction closes, current Broadcom shareholders will own around 88% and current VMware shareholders will own 12% of the combined company on a fully diluted basis.
Broadcom has obtained a commitment of $32 billion in new, fully committed debt financing from a consortium of banks in connection with the transaction. Broadcom plans to continue giving the dividend of 50% of its free cash flow from the previous year to shareholders. The company also plans to keep its investment-grade rating, given its strong cash flow and plans to rapidly pay off debt. The transaction will be subject to the receipt of regulatory approvals and other customary closing conditions which includes approval by VMware shareholders and is expected to be completed in Broadcom’s fiscal year 2023.
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