Under the terms of the transaction, shareholders can either take $142.50 in cash or a 0.2520 share of Broadcom for every share of VMware. That represents a more than 40 percent premium over VMware’s stock price at the time reports of the takeover first surfaced.
The deal coincides with a brutal, months-long sell-off on Wall Street, fueled by inflation and recession fears that have taken an outsize toll on the technology stocks that powered much of the tremendous rally that started early in the pandemic. The tech-heavy Nasdaq index is deep into a bear market, having fallen 30 percent since its November 2021 peak.
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On Thursday, however, stocks registered a win, as the Dow surged by more than 500 points and the major indexes set the stage to break a weeks-long losing streak. The deal’s significance was amplified by market’s recent frantic movements and the broader economic uncertainty centered on historic levels of inflation and global supply chain disruptions.
“This is a historic deal that speaks to the consolidation in the tech sector during this downturn with this marriage making a ton of strategic sense,” said Wedbush analyst Dan Ives. “Broadcom buying VMware is also bullish for the cross-pollination between cloud and 5G globally over the coming years.”
Executives said the combination would allow both companies to offer an expanded platform of crucial infrastructure services for large enterprises. It also gives Broadcom a significant foothold in cloud computing, a lucrative business that the tech giants have sought to expand.
Worldwide spending on cloud services is forecast to grow by more than 20 percent in 2022, to nearly $500 billion, up from $411 billion in 2021, according to the latest forecast from the research and consulting firm Gartner, Inc. By the end of next year, spending is expected to reach almost $600 billion.
“Collectively, we will deliver even more choice, value and innovation to customers, enabling them to thrive in this increasingly complex multi-cloud era,” said VMware chief executive Raghu Raghuram in a news release.
Broadcom has a penchant for blockbuster deals, including its $10.7 billion purchase of Symantec in 2019 and $18.9 billion acquisition of CA Technologies in 2018. But that same year, the Trump administration shut down what would have been the then-Singapore-based company’s biggest get: Qualcomm.
The administration rejected the staggering $117 billion deal on national security grounds. The combination would have put one of America’s largest mobile chipmakers in the hands of a company based in Asia, a region that has been racing against U.S. companies to develop the next generation of mobile technology. The move also was in line with the protectionist rhetoric and initiatives under President Donald Trump, which included steep tariffs on steel and aluminum imports, and a prolonged antagonism toward China.
Broadcom moved its headquarters to California not long afterward.
VMware’s controlling ownership has recently changed hands. Last year, Dell spun off its 81 percent stake in the company. Michael Dell, the chief executive and founder of the computing company, owns about 40 percent of VMware, and has agreed to vote in favor of the deal. The companies expect the transaction to be completed in Broadcom’s fiscal 2023, pending approval by WMware shareholders and a nod from regulators.
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The deal is one of the biggest technology mergers of all time, behind Microsoft’s $69 billion acquisition of gaming giant Activision Blizzard. Meanwhile, Tesla CEO Elon Musk is in the midst of a high-profile effort to buy Twitter for $44 billion.
Broadcom shares advanced 3.6 percent Thursday to close at $550.66, giving it a market cap of $224.8 billion. VMware jumped 3.2 percent to settle at $124.36, putting its market value at $52.4 billion.