Merger activity increased significantly last week with seven new deals announced and six deals completed. Three of the seven new deals announced were potential deals in the works.
One of the largest tech deals in M&A history was announced last week. Chipmaker Broadcom entered into an agreement to acquire VMware for $69 billion in a cash or stock deal, which includes $8 billion of VMware’s net debt, that will be assumed by Broadcom. VMWare was spun off from Dell Technologies (DELL) on November 1, 2021. VMware was founded in the year 1998 and later acquired by EMC in January 2004 and eventually ended up with Dell after EMC was acquired by Dell in a massive $67 billion deal in 2016.
We added VMware as a potential deal in the works on May 22, 2022, when Bloomberg reported that Broadcom (AVGO) was in talks to acquire VMware. VMW’s price after this announcement was $119.43. When I first heard rumors of the deal, I dismissed it because of both the size of the deal and the likely regulatory challenges a deal with Broadcom would encounter. Broadcom’s highly acquisitive CEO Hock Tan was blocked from acquiring Qualcomm (QCOM) in a hostile $117 billion takeover when President Trump prohibited the deal on national security grounds. Broadcom’s acquisition of VMware will be reviewed by either the FTC or the DOJ, the Committee on Foreign Investment in the United States (CFIUS) and multiple international regulatory agencies including China’s State Administration for Market Regulation (SAMR).
According to the terms of the deal, VMware shareholders will be able to elect to receive either $142.50 in cash or 0.2520 shares of Broadcom common stock for each VMware share. The shareholder election will be subject to proration, resulting in approximately 50% of VMware’s shares being exchanged for cash consideration and 50% being exchanged for Broadcom common stock. The deal also includes a 40 day “go-shop” provision during which VMware can solicit alternative proposals.
Michael Dell and Silver Lake, who own 40.2% and 10% of VMW respectively, agreed to vote in favor of the transaction. According to the press release, both parties have agreed to a $1.5 billion termination fee, but VMware will only have to pay $750 million if it finds a superior offer by the July 5 deadline. The deal is expected to be completed in Broadcom’s fiscal year 2023. After the closing of the deal, the Broadcom Software Group will rebrand and operate as VMware.