Image : Mike Blake/Reuters

Broadcom Acquires VMware In A $ 61 Billion Corporate Computing Deal

Semiconductor giant Broadcom announced Thursday that it has agreed to acquire VMware, a software company that will reshape the vast enterprise information technology market, for $ 61 billion.

The acquisition, which provides Broadcom with popular computing tools used by various companies, is the second in the world, following Microsoft’s $ 75 billion bid for video game company Activision Blizzard, according to Dealogic data. proposed this year.

The merger will give Broadcom a major role in data center technology and cloud computing, but it will not be associated with the alias as it was on Elon Musk’s Twitter account. Yet he reminds us that tens of billions of dollars are spent each year to unite the many companies that create the technology that underlies the Internet and corporate computer networks.

The Broadcom agreement is the latest in a series of changes in ownership of VMware, a leading software company that helped create some of the core technologies commonly used in cloud computing today. VMware has over 500,000 customers worldwide and partners with leading cloud service providers, including Amazon, Microsoft and Google.

As such, VMware is a valuable asset to Broadcom CEO Hawk E Tan. Broadcom said in a statement that it will spend the equivalent of $ 138.23 per VMware share on cash and stock transactions. That’s 40% higher than VMware’s stock price before rumors of a deal last weekend.

“VMware supplies most of the world plumbing,” said Gartner analyst Dennis Smith in an interview. Smith said VMware helps manage the company’s data more than the combined public clouds of Amazon, Microsoft and Google, which are struggling to get more data into their services.

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Tan was one of the chip industry’s largest acquisitions, joining Broadcom one deal at a time, until President Donald J. Trump blocked Broadcom’s acquisition of chip maker Qualcomm in March 2018 for reasons of safety. . Broadcom, headquartered in Singapore at the time, moved its headquarters to San Jose, California.

Since then, Mr. Tan has diversified his goals. At the end of 2018, he acquired software company CA Technologies for $ 18.9 billion and Symantec’s security division for $ 10.7 billion in 2019.

In these transactions, Mr. Tan pursued an existing business that was essential to the company’s IT infrastructure. CA began providing mainframe computer software decades ago and has grown to a variety of products over the years, while Symantec has established itself as a leader in cybersecurity tools.

Under the agreement, CA and Symantec join VMware, which will become the new name of Broadcom’s software division. Whether Broadcom gives VMware decision-making is “a $ 61 billion deal,” Smith said.

Broadcom said it will raise $ 32 billion in debt from various banks. The company said it plans to pay off its debt “as soon as possible” after the transaction. The chip maker followed a similar pattern in its recent software trading. They indulged in their throats and then ate, giving priority to paying the debt.

With so-called virtualization software that allows one computer to act as multiple computers and inherently increase processing efficiency, VMware will become Broadcom’s flagship resource. VMware has improved the role of software in the data center and the way organizations manage industrial computers. The concept behind VMware technology was central to virtualization-based cloud computing.

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VMware posted revenue of $ 12.9 billion for the last fiscal year ending January 28. This is a 9% increase over the previous year. This growth rate is much slower than the cloud computing segments of Amazon, Microsoft and Google. Founded in 1998, before the rise of the cloud, VMware still relied on its customers to manage its data centers.

This agreement is the latest in a series of major changes in VMware. The Palo Alto, California-based company lost CEO Pat Gelsinger to Intel in January 2021. On May 12, they acquired a new CEO, Raghu Raghuram, and lost their COO, Sanjay Punin, in the same location. . In November, the software maker went independent when it was spun off from Dell Technologies.

Under Gelsinger’s leadership, VMware was eager to move away from the majority-owned PC maker. Dell has acquired a stake in EMC, a former majority shareholder of VMware. VMware sees independence as a strategic advantage, allowing it to forge new alliances with a variety of technology vendors. I also thought that if I split with Dell, Wall Street would reward me with a higher share price.

Instead, the company’s shares are down 19% since the start of the year on Friday, the last day of trading before Bloomberg announced a deal with Broadcom.

Deutsche Bank analyst Brad Zelnick said VMware has lost the attention of public investors as it struggles to compete with the latest cloud technologies.

“As a company that has to adapt to these changes, we have challenges “, said Zelnick.

This inventory reduction made VMware a more attractive target for Tan and other stakeholders. VMware’s long-awaited independence ends when shareholders and regulators agree on this deal.

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The terms of the agreement with Broadcom include a “buy-in” period during which VMware executives can find better deals from other buyers for 40 days. The acquisition of VMware could be a good option for many other technology companies, including IBM and Intel.

Article Source : https://www.nytimes.com/2022/05/26/technology/broadcom-vmware-deal.html

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