Semiconductor giant Broadcom said on Thursday it has agreed to acquire software company VMware in a $61 billion transaction. The deal will provide Broadcom with popular computing tools used by a large group of companies and will change the nature of the broad market for enterprise computing technology.
The chip company will spend the equivalent of $138.23 per share on VMware in a cash and stock deal. said in a statement. That’s 40 percent higher than before last week when rumors of a deal started circulating.
The combination will make Broadcom a major player in data center technology and cloud computing. According to data from Dealogic, this will also be the second largest recommended purchase in the world this year. (Microsoft’s $75 billion bid for Activision Blizzard is the largest.) VMware has more than 500,000 customers worldwide and counts as partners of all major cloud providers, including Amazon, Microsoft, and Google. This makes VMware a valuable asset to Broadcom CEO Hock E. Tan.
Until President Donald J. Trump blocked Broadcom’s $117 billion bid, Mr. Tan was one of the most lucrative forces in the chip industry, uniting Broadcom as a deal at a time. takeover of chip maker Qualcomm On national security grounds in March 2018. Broadcom, which was based in Singapore at the time, moved its headquarters to San Jose, California.
VMware will be Broadcom’s most important asset, with virtualization software that allows a computer to act like many machines, essentially making computing more efficient. VMware reported revenue of $12.9 billion in its last fiscal year ended Jan. This was a 9 percent increase over the previous year. This growth rate was much slower than the cloud computing arms of Amazon, Microsoft and Google. Founded in 1998, before the cloud boom, VMware was still dependent on customers running their own data centers.
A deal will be the last in a series of big changes for VMware. Headquartered in Palo Alto, California, the company lost its longtime CEO, Pat Gelsinger, to Intel in January 2021. On May 12, it won its new CEO, Raghu Raghuram, and lost its chief operating officer, Sanjay Poonen. on the same day. It became independent in November when the software maker split from Dell Technologies.
Under Mr. Gelsinger, VMware was eager to get rid of the PC manufacturer, which owned most of its shares. Dell acquired the stake by purchasing EMC, the previous majority owner of VMware. VMware envisioned independence as a strategic benefit and allowed it to form new alliances with various technology providers. He also believed that Wall Street would reward him with a higher share price if he left Dell.
Instead, the company’s shares fell 19 percent by Friday, the last trading day before the start of the year. Bloomberg reports on the negotiations With Broadcom.
Brad Zelnick, an analyst at Deutsche Bank, said VMware has lost its appeal to public investors as it struggles to compete with new cloud technology.
“They have had a hard time as a business to adapt to this transition,” Mr. Zelnick said.
This stock drop has made VMware a more attractive target for Mr. Tan, and if shareholders and regulators approve the deal, VMware’s long-desired independence will already come to an end.