May 27, 2022
Broadcom Inc, a global leader in the design, development and delivery of infrastructure and semiconductor software solutions, today announced an agreement to acquire all outstanding shares and VMware Inc, a premier innovator enterprise software plan in a cash and stock deal that values VMware at around $61 billion.
VMware, a leading provider of multi-cloud services for all applications, pioneered virtualization technology, an innovation that positively transformed x86 server-based computing. VMware went on to create the software-defined data center and played a leading role in network and storage virtualization, before evolving to become a leader in hybrid cloud and the digital workspace.
Following the closing of the transaction, Broadcom Software Group will rebrand and operate as VMware, integrating Broadcom’s existing infrastructure and security software solutions as part of an expanded VMware portfolio.
The combined company will provide enterprise customers with an expanded platform of mission-critical infrastructure solutions to accelerate innovation and address the most complex IT infrastructure needs, Broadcom said in a statement.
“Building on our proven track record of successful mergers and acquisitions, this transaction combines our core semiconductor and infrastructure software businesses with an iconic pioneer and innovator in enterprise software, as we reimagining what we can offer customers as a leading infrastructure technology company. We look forward to The talented VMware team joins Broadcom, further cultivating a shared culture of innovation and creating even greater value for our combined stakeholders, including both groups of shareholders,” said Hock Tan, Chairman and CEO of Broadcom.
“VMware has reshaped the IT landscape over the past 24 years, helping our customers become digital businesses. We stand for innovation and the unwavering support of our customers and their most important business operations, and now we’re extending our commitment to exceptional service and innovation by becoming Broadcom’s new software platform. Combining our assets and talented team with Broadcom’s existing enterprise software portfolio, all hosted 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,” said Raghu Raghuram, CEO of VMware.
“VMware has long been recognized for its leadership in enterprise software, and with this transaction, we will provide customers around the world with the next generation of infrastructure software. VMware’s platform and Broadcom’s infrastructure software solutions serve different but important business needs, and the combined company will be able to serve them more efficiently and securely,” said Tom Krause, president. of Broadcom Software Group.
“With Broadcom, VMware will be even better positioned to deliver valuable and innovative solutions to even more of the world’s largest companies. This is a historic moment for VMware and provides our shareholders and employees with the opportunity to participate in a significant upside,” Michael Dell, chairman of VMware’s board of directors, said.
Broadcom expects the transaction to add approximately $8.5 billion to the acquisition’s pro forma EBITDA within three years of closing. Pro forma for each company’s fiscal year 2021, software revenue is expected to represent approximately 49% of Broadcom’s total revenue.
Under the terms of the agreement, which was unanimously approved by the boards of directors of both companies, VMware shareholders will elect to receive either $142.50 in cash or 0.2520 shares of Broadcom common stock for every VMware action. The shareholder election will be pro-rated, which will result in the exchange of approximately 50% of VMware shares for cash consideration and the exchange of 50% for Broadcom common stock.
Based on the closing price of Broadcom common stock on May 25, the total consideration of $138.23 per share represents a 44% premium to the closing price of VMware common stock on May 20, 2022, the last trading day ahead of media speculation of a potential transaction and a 32% premium to VMware’s unaffected 30-day volume-weighted average price (VWAP). Upon closing of the transaction, based on each company’s outstanding shares as of the date hereof, current Broadcom shareholders will own approximately 88% and current VMware shareholders will own approximately 12% of the combined company on a wholly owned basis. diluted.
Michael Dell and Silver Lake, which own 40.2% and 10% of outstanding VMware shares, respectively, have signed support agreements to vote in favor of the transaction, as long as VMware’s board of directors continues to recommend the transaction offered with Broadcom.
As part of the transaction, Broadcom secured commitments from a syndicate of banks for $32 billion in fully committed new debt financing.
Broadcom plans to maintain its current dividend policy of providing 50% of its prior year free cash flow to shareholders. The company also expects to maintain an investment grade rating, given its strong cash flow generation and intention to deleverage quickly.
The transaction, which is expected to close in Broadcom’s 2023 fiscal year, is subject to receipt of regulatory approvals and other customary closing conditions, including VMware shareholder approval.
The merger agreement provides for a “go-shop” provision under which VMware and its board of directors may actively solicit, receive, evaluate and potentially enter into negotiations with parties who offer alternative proposals for a period of 40 days from the date of execution of the definitive agreement.
In a separate press release issued today, Broadcom announced a 23% year-on-year increase in fiscal second quarter (ended May 1, 2022) revenue to $8.10 billion for the fiscal year. 2022. Net income for the quarter was $2.59 billion while adjusted EBITDA was $5.11 billion.
The company expects third-quarter adjusted EBITDA to be about 63.5% of its fiscal 2022 third-quarter revenue forecast of about $8.4 billion.
Broadcom’s board of directors also authorized a new share buyback program to repurchase up to $10 billion of its common stock through December 31, 2023. This new share buyback authorization is in addition to the share repurchase program authorized in December 2021, under which Broadcom can repurchase the remaining $3 billion of common stock through December 31, 2022.
Barclays Capital Inc, BofA Securities, Inc, Citigroup Global Markets Inc, Credit Suisse Securities (USA) LLC, Morgan Stanley & Co LLC and Wells Fargo Securities LLC are acting as financial advisors to Broadcom.
Wachtell, Lipton, Rosen & Katz and O’Melveny & Myers LLP are legal counsel to Broadcom, and Cleary Gottlieb Steen & Hamilton LLP is regulatory counsel.
Goldman Sachs & Co. LLC and JP Morgan Securities LLC are financial advisors to VMware, and Gibson, Dunn & Crutcher LLP is legal advisor.