Broadcom Inc has agreed to a $61 billion takeover of VMware Inc, a big bet that the enterprise software demand boom will continue despite the current economic turmoil.
The deal to buy VMware, announced on Thursday after The Wall Street Journal earlier this week reported on the deal talks, pushes Broadcom deeper into the software world populated by the likes of tech giants International Business Machines Corp. and Oracle Corp.
The deal, one of the year’s biggest takeovers, would nearly triple the size of Broadcom’s software division and account for nearly 49% of the company’s revenue.
READ: Broadcom in talks to acquire cloud service provider VMware Inc
Under the deal terms, VMware shareholders can elect to receive either $142.50 in cash or 0.252 Broadcom shares for each VMware share. Based on Broadcom’s closing price Wednesday, the deal offers a total per-share value of $138.23, a 44% premium to VMware’s close on May 20, 2022, the last trading day before media reports of the deal. Broadcom also will assume $8 billion of VMware’s debt.
The boards of both companies have approved the deal. Michael Dell and private-equity investor Silver Lake, which own 40.2% and 10% of VMware shares outstanding, respectively, have signed support agreements to vote in favor of the transaction, as long as the VMware board continues to recommend the proposed transaction with Broadcom.
The merger agreement provides for a “go-shop” provision under which VMware may actively solicit other proposals during a 40-day period that ends July 5, 2022.
The companies expect the deal to close during Broadcom’s next fiscal year, which runs from November to October. Following the close, Broadcom shareholders will own approximately 88% of the company and current VMware shareholders will own 12%.
In midday trading in New York, VMware shares were up 3.8% to $124.63, while Broadcom shares rose 4.8% to $558.26.
Contact the author at jon.hopkins@proactiveinvestors.com