Broadcom has announced this Thursday that it will buy cloud computing giant VMware for $68 billion to offer its enterprise customers “more choice and flexibility to address the most complex IT infrastructure challenges.”
The operation, which will materialize in cash and shares, and after the approval of the regulators, will become the third largest in the history of technology. It will sit behind the 2015 merger of EMC Corp and Dell and Microsoft’s purchase of Activision Blizzard earlier this year.
What is behind this giant purchase
According to terms of agreementwhich has been unanimously approved by the boards of directors of both companies, Broadcom’s offer price per VMware share has been closed at $142.5. This represents a premium of nearly 49% over the last market close. The semiconductor maker will take on $8 billion in net debt from the software company.
How is this transaction translated? It means that Broadcom gets more than the virtualization services that VMware (which until last year was owned by DELL) is so well known for. It will also benefit from the technology of other companies that it has been acquiring over the last few years with the aim of diversifying its business.
VMware bought in 2018 from Heptiowhich provided services Kubernetes, and in 2019 it was by Pivotal, which provided support services for companies that were in the midst of their digital transformation process. Broadcom, for its part, previously acquired database and security firm CA Technologies for $18.9 million.
We must not forget that, as in any purchase of this size, regulators from different parts of the world will come into play, which must give their approval for it to be completed. Last year, Broadcom tried to buy Qualcomm for $121 billion, but was foiled by US regulators.
The authorities have also pushed back other purchase attempts. Remember when Nvidia tried to take over ARM? The European Union and the US FTC considered it too dangerous a deal for the industry and stopped it.
If all goes according to plan, the purchase should close during fiscal year 2023. By then, Broadcom Software Group will change its name to VMware and will incorporate your existing infrastructure and security software offerings.
“Combining our assets and talented team with Broadcom’s existing portfolio of enterprise software, all hosted under the VMware brand, creates a standout enterprise software player,” says Raghu Raghuram, CEO of VMware.
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