Broadcom, the semiconductor giant, said Thursday it had agreed to buy software company VMware in a deal valued at $61 billion. The deal would provide Broadcom with popular computing tools used by a large number of enterprises and reshape the vast enterprise computing technology market.
The chip company will spend the equivalent of $138.23 per share on VMware as part of the cash and stock deal, it said in a statement. That’s more than 40% higher than VMware’s stock price before rumors of a deal started circulating over the weekend.
This combination would make Broadcom a significant player in data center technology and cloud computing. It would also be the second-largest proposed acquisition in the world this year, according to Dealogic data. (Microsoft’s $75 billion bid for Activision Blizzard is the largest.) VMware has more than 500,000 customers worldwide and counts all major cloud providers as partners, including Amazon, Microsoft and Google. This makes VMware a valuable asset to Broadcom CEO Hock E. Tan.
Mr. Tan had been one of the chip industry’s most successful forces, assembling Broadcom one deal at a time, until President Donald J. Trump blocked Broadcom’s proposed $117 billion takeover. from chipmaker Qualcomm in March 2018 for national security reasons. Broadcom, which was based in Singapore at the time, moved its headquarters to San Jose, California.
Since then, Mr. Tan has diversified his targets. He bought software company CA Technologies for $18.9 billion later in 2018 and a security division of Symantec for $10.7 billion in 2019.
With its so-called virtualization software, which allows one computer to act like multiple machines and essentially makes computing more efficient, VMware would be Broadcom’s star asset. VMware posted revenue of $12.9 billion in its most recent fiscal year, which ended Jan. 28. This is a 9% 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 depended on customers who still operated their own data centers.
A deal would be the latest in a series of major changes for VMware. The company, based in Palo Alto, Calif., lost its longtime chief executive, Pat Gelsinger, to Intel in January 2021. On May 12, it gained a new chief executive, Raghu Raghuram, and lost a managing director, Sanjay Poonen, on the same day. In November, the software company became independent when it separated from Dell Technologies.
Under Mr. Gelsinger, VMware was keen to spin off the personal computer maker that held the majority of its shares. Dell acquired the stake through its acquisition of EMC, which was the previous majority owner of VMware. VMware viewed independence as a strategic advantage, allowing it to forge new alliances with a variety of technology vendors. He also believed that Wall Street would reward him with a higher share price if he split from Dell.
Instead, the company’s shares are down 19% year-to-date through Friday, the last trading day before Bloomberg reports on negotiations with Broadcom.
Brad Zelnick, an analyst at Deutsche Bank, said VMware had lost its luster with public investors because it struggled to compete with new cloud technology.
“They’ve been challenged as a business to adapt to this transition,” Zelnick said.
This stock plunge has made VMware a more attractive target for Mr. Tan, and potentially other suitors. The terms of the agreement with Broadcom include a “go-shop” period, which gives VMware management 40 days to seek a better deal from another buyer. The acquisition of VMware could make sense for several other technology companies, such as IBM or Intel.
If shareholders and regulators approve the deal, VMware’s long-desired independence will come to an end.