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Broadcom agrees $61 billion deal for VMware

Price is 44% premium on VMware's valuation before rumours of the deal surfaced.

Chip giant Broadcom has agreed to buy VMware for $61 billion in cash and stock, the firms confirmed today.

The move comes following days of rumours around the purchase.

The price represents around a 44% premium on VMware’s valuation on 20 May, the day before talk of the buyout emerged. VMware shareholders can either receive $142.50 in cash or 0.2520 Broadcom shares for each VMware share they hold.  Following the deal, Broadcom's software division will rebrand as VMware.

Broadcom buying VMware fits with the firm’s aggressive acquisitions strategy – buying Computer Associates in 2018 and Symantec in 2019, and attempting to buy competitor Qualcomm for $117 billion before being blocked by the US government in 2018 over controversial national security concerns.

"The combined solutions will enable customers, including leaders in all industry verticals, greater choice and flexibility to build, run, manage, connect and protect applications at scale across diversified, distributed environments, regardless of where they run: from the data center, to any cloud and to edge-computing. With the combined company's shared focus on technology innovation and significant research and development expenditures, Broadcom will deliver compelling benefits for customers and partners" the company said.

John Abbott, principal research analyst, 451 Research, a part of S&P Global Market Intelligence noted: "VMware was never going to explore its post-Dell Technologies world independently for long. Broadcom’s rebranding shows that it will position VMware as its flagship software offering, and work to maintain the unit’s identity in order to maintain its wide-ranging relationships across the industry, including all the cloud hyperscalers and chip companies that might see Broadcom as a rival. This position is re-enforced by the lack of any obvious and immediate synergies with Broadcom’s chip business (except perhaps for some networking and edge opportunities)."

He added: "On the software side, while security expertise and IP from Symantec might bolster VMware’s own security offerings, it’s hard to see where the CA portfolio, much of it mainframe oriented, will fit in. Critics and rivals will worry that this will slow VMware down with too much legacy overhead just at a point when emerging cloud native software stacks are making the traditional VMware virtualization platform less compelling than it once was

See also: Broadcom in talks to buy VMware, as chipmakers eye software growth

VMware is the dominant player in the virtualisation market, with a 72% market share and revenue of $5.9 billion, according to Gartner. Broadcom is the number-six chip-maker in the world by market share according to the research firm, and has revenues of $18.8 billion.

Hock Tan, president and CEO of Broadcom, said in a press release: "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."

VMware CEO Raghu Raghuram said of Broadcom buying VMware: "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."

Under the deal Broadcom will also acquire $8 billion of VMware’s debt.

Major shareholders Michael Dell and Silverlake, who together own more than 50% of VMware, gave approval for the deal provided the VMware board continues to recommend it.

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