Broadcom, the semiconductor giant, said Thursday it had agreed to buy software company VMware in a $61 billion transaction. The deal would provide Broadcom with popular computing tools used by a large number of companies and reshuffle the massive business computing technology market.
The chip company will spend the equivalent of $138.23 per share for VMware in the cash-and-stock deal, it said in a statement† That’s more than 40 percent higher than VMware’s stock price before deal rumors circulated this weekend.
The combination would make Broadcom a major player in data center technology and cloud computing. According to data from Dealogic, it would also be the world’s second largest acquisition this year. (Microsoft’s $75 billion bid for Activision Blizzard is the largest.) VMware has more than 500,000 customers worldwide and partners with all major cloud providers, including Amazon, Microsoft and Google. That makes VMware a valued asset to Broadcom’s chief executive, Hock E. Tan.
Mr. Tan had been one of the most greedy forces in the chip industry, forging Broadcom together one deal at a time, until President Donald J. Trump blocked Broadcom’s proposed $117 billion acquisition of chip maker Qualcomm in March 2018 for reasons of national security. Broadcom, which was based in Singapore at the time, has relocated its headquarters to San Jose, California.
With its so-called virtualization software, which allows one computer to behave like many machines and essentially make computing more efficient, VMware would be Broadcom’s flagship product. VMware reported revenue of $12.9 billion in its last fiscal year, which ended January 28. That was an increase of 9 percent from the previous year. That growth rate was much slower than the cloud computing arms of Amazon, Microsoft and Google. Founded in 1998, before the rise of the cloud, VMware relied on customers still operating their own data centers.
A deal would be the latest in a series of major changes for VMware. The company, based in Palo Alto, California, 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 chief operating officer, Sanjay Poonen, on the same day. In November, the software maker became independent when it was spun off from Dell Technologies.
Under Mr. Gelsinger, VMware was eager to break away from the personal computer maker who owned a majority of its shares. Dell acquired the stake through the acquisition of EMC, VMware’s previous majority shareholder. VMware saw independence as a strategic advantage, allowing it to forge new alliances with a variety of technology vendors. It also believed that Wall Street would reward it with a higher share price if it split from Dell.
Instead, the company’s stock fell 19 percent from the start of the year to Friday, the last trading day before Bloomberg reported on the negotiations with Broadcom.
Brad Zelnick, an analyst at Deutsche Bank, said VMware has lost its luster with public investors as it struggles to compete with newer cloud technology.
“They have been challenged as a company to adapt to this transition,” said Mr. Zelnick.
That stock drop made VMware a more attractive target for Mr. Tan and possibly other suitors. The terms of the deal with Broadcom include a “go-shop” period, which gives VMware management 40 days to seek a better offer from another buyer. The VMware acquisition 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.