SAN JOSE, Calif. — Broadcom agreed Thursday to acquire VMware for approximately $61 billion in cash and stock, plus assume about $8 billion of VMware net debt, in one of the largest technology transactions ever announced and the clearest sign yet that Broadcom intends to make enterprise software a co-equal business with semiconductors.
Under the announced terms, VMware shareholders may elect either $142.50 in cash or 0.2520 Broadcom shares for each VMware share, subject to proration so that roughly half of VMware shares receive cash and half receive stock. Based on Broadcom’s May 25 closing price, the company said the implied consideration represented a 44% premium to VMware’s May 20 share price, before reports of negotiations became public.
Broadcom is using a megadeal to rebalance its business
The acquisition would sharply increase the importance of software inside Broadcom. In its May 26 filing, Broadcom said software would account for about 49% of pro forma fiscal 2021 revenue after the transaction. The company plans to place its existing infrastructure software portfolio under the VMware brand, creating a larger business spanning virtualization, cloud infrastructure, security, mainframe and enterprise operations software.
That strategy extends a pattern established through Broadcom’s acquisitions of CA Technologies and Symantec’s enterprise security business. The difference is scale. VMware is not an ancillary software purchase; it is a foundational enterprise technology supplier whose virtualization products are deeply embedded in corporate data centers and whose newer products are designed for hybrid and multi-cloud computing.
Broadcom’s investor presentation said the combined company would generate more than $40 billion of pro forma revenue and that Broadcom expects approximately $8.5 billion of pro forma EBITDA from VMware within three years after closing. Those targets imply significant integration and cost discipline as well as expectations for continued recurring software revenue.
The transaction mixes cash, stock and substantial new financing
Broadcom has lined up $32 billion of fully committed new debt financing from a banking consortium to support the cash portion of the transaction. The transaction filing also describes the exchange mechanics and conditions, including shareholder and regulatory approvals.
The merger agreement itself gives VMware a 40-day “go-shop” period, allowing its board to solicit alternative proposals through July 5. The agreement includes termination-fee provisions that vary depending on how and when the deal ends, a structure designed to give VMware some ability to test the market while still providing Broadcom with contractual protection.
Broadcom expects the transaction to close in its fiscal 2023. That timetable leaves room for extensive regulatory review in the United States and abroad, particularly because both companies supply important components of enterprise computing infrastructure, even though their product lines are more complementary than directly overlapping.
VMware’s two largest voting blocs are already committed
Michael Dell and investment firm Silver Lake together control just over half of VMware’s outstanding shares and have agreed to support the transaction while VMware’s board continues to recommend it. Dell’s voting agreement covers the shares held by his affiliated stockholders, which Broadcom said represent about 40.2% of VMware’s shares.
Silver Lake’s separate support agreement covers approximately 10% of VMware shares. Those commitments do not eliminate closing risk, but they give Broadcom a strong starting position for the shareholder vote and reduce uncertainty about whether VMware’s largest holders will oppose the agreed price.
For Dell, the deal represents another major change in the ownership path of a company that became closely linked to Dell Technologies through its 2016 EMC acquisition. VMware was spun off from Dell in November 2021, leaving Dell and Silver Lake as large independent shareholders.
The strategic bet is on hybrid and multi-cloud infrastructure
Broadcom Chief Executive Hock Tan said the combination would pair semiconductor and infrastructure-software businesses with VMware’s position in enterprise software. VMware Chief Executive Raghu Raghuram said the company would become the software platform for Broadcom and argued that the combined portfolio could serve enterprises operating increasingly complex multi-cloud environments.
VMware’s own May 26 filing confirms the board-approved agreement and the transaction structure. For VMware customers, the most important long-term questions are likely to concern product investment, licensing, integration and whether Broadcom applies the operating model it has used in prior software acquisitions to VMware’s broad product portfolio.
For Broadcom investors, the transaction increases leverage but also shifts the company further toward recurring enterprise software revenue. Broadcom has said it expects to maintain its dividend policy and investment-grade credit profile while rapidly reducing debt after closing.
A large transaction now faces a long execution test
The announcement settles the immediate question of whether Broadcom and VMware could agree on price and structure, but not whether the transaction will ultimately close or deliver its projected economics. Regulatory agencies must review the combination, VMware shareholders must approve it, and Broadcom must finance and integrate a company with a large installed base and a very different operating history.
The deal is nonetheless a defining strategic move. Broadcom is proposing to spend approximately $61 billion not to add another chip franchise, but to transform itself into a company in which semiconductor infrastructure and enterprise software contribute roughly comparable shares of revenue. If completed on the announced terms, VMware will become the centerpiece of that software strategy and one of the largest acquisitions in the history of the technology industry.
