Broadcom has put forward a $61 billion proposal made up of cash and stock that would see it control 88% of the shares in VMware, with the current shareholders retaining a 12% stake.
Michael Dell, who owns 40% of VMware, and private equity firm Silver Lake which controls another 10%, are backing the deal that would also see Broadcom take on $8 billion in VMware debt.
Should the transaction close, Broadcom said its current software group, which includes infrastructure operations and security software, would be rebranded and operated as 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,” VMware CEO Raghu Raghuram said.
“Collectively, we will deliver even more choice, value and innovation to customers, enabling them to thrive in this increasingly complex multi-cloud era.”
The deal is expected to close in fiscal 2023 and Broadcom has lined up $32 billion in new debt to complete it.
The terms of the deal give VMware 40 days to shop around for a better deal. If completed, the purchase would add $8.5 billion in EBITDA to Broadcom’s earnings within three years, and on a pro-forma basis for 2021, software revenue would have accounted for 49% of Broadcom’s revenue.
At the same time, Broadcom announced its second quarter earnings and reported $2.6 billion in net income on a GAAP basis from $8.1 million in net revenue, increases of 23% and 173% year-on-year respectively.
The vast majority of the revenue, $6.2 billion up 77%, was attributed to its semiconductor division with the remainder being made up of its software arm that saw 23% growth.
“Broadcom’s second quarter revenue accelerated sequentially, and was driven by strength in networking and server storage,” Broadcom president and CEO Hock Tan said.
“We expect this momentum to continue into the third quarter.”
In 2019, Broadcom purchased Symantec’s enterprise security business for $10.7 billion, and in 2020 sold off Symantec’s Cyber Security Services business to Accenture.
At the end of 2021, Dell Technologies completed its spin-off of VMware. VMware was founded in 1998, bought by EMC in 2004, which was then purchased by Dell in 2016.