Computer chip and software maker Broadcom will spend about $61 billion to acquire cloud technology company VMware, one of the biggest deals of the year despite rising inflation and economic uncertainty.
The proposed deal comes just weeks after billionaire and Tesla CEO Elon Musk offered to spend $44 billion on Twitter. Dell Technologies Inc. sold its majority stake in VMware only 6 months ago.
Broadcom wants to establish a stronger position in the cloud computing market, and VMware’s technology allows large enterprises to combine public cloud access with internal corporate networks.
The Broadcom Software Group will change its name and operate as VMware once the transaction closes. The cash and stock deal also includes $8 billion of VMware net debt.
Under the proposed offer, VMware shareholders can elect to receive either $142.50 in cash or 0.2520 shares of Broadcom common stock for each VMware share.
Michael Dell is still president of VMware and owns 40.2% of the company’s outstanding shares. Dell Technologies completed the spin-off of its 81% stake in VMware Inc. in November.
Dell and Silver Lake, which owns 10% of VMware’s outstanding shares, have signed support agreements to vote in favor of the transaction, so long as VMware’s board of directors continues to recommend the proposed deal.
The transaction includes a “go-shop” clause, such that VMware is permitted to actively solicit, receive, evaluate and potentially enter into negotiations with parties who offer alternative proposals for a period of 40 days.
To help fund the transaction, Broadcom secured commitments from a syndicate of banks for $32 billion in fully committed new debt financing.
Current Broadcom Inc. shareholders are expected to own approximately 88% and current VMware shareholders to own approximately 12% of the combined company.
Both companies’ boards of directors have approved the deal, which is expected to close in Broadcom’s 2023 fiscal year. It still needs to be approved by VMware shareholders.
Broadcom shares fell before the market opened on Thursday, while VMware shares edged higher.