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Broadcom to Acquire VMware in $61 Billion Enterprise Computing Deal

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Broadcom, the semiconductor giant, said on Thursday that it had agreed to buy the software company VMware in a transaction valued at $61 billion that would reshuffle the vast market for enterprise computing technology.

The deal, which would furnish Broadcom with popular computing tools used by a large swath of corporations, would be the world’s second-biggest proposed acquisition this year, after Microsoft’s $75 billion bid for the video game company Activision Blizzard, according to data from Dealogic.

While the combination would make Broadcom a significant player in data-center technology and cloud computing, it is hardly a joining of household names, as is Elon Musk’s high-profile pursuit of Twitter. It is a reminder, however, that tens of billions of dollars are spent every year in mergers among the many companies that make the technologies that power the internet and large corporate computer networks.

The deal with Broadcom is the latest in a series of ownership changes for VMware, a pioneering software company that helped create some of the key technologies now commonly used in cloud computing. VMware has more than 500,000 customers around the world, and counts as partners all the major cloud providers, including Amazon, Microsoft and Google.

That makes VMware a prized asset for Broadcom’s chief executive, Hock E. Tan. Broadcom will spend the equivalent of $138.23 per share for VMware in the cash-and-stock deal, it said in a statement. That is more than 40 percent higher than VMware’s stock price before rumors of a deal began to circulate last weekend.

VMware “is providing the plumbing for most of the world,” Dennis Smith, an analyst at Gartner, said in an interview. VMware’s software helps manage more corporate information than the combined public clouds of Amazon, Microsoft and Google — all of which have battled to bring more of that data to their services, Mr. Smith said.

Mr. Tan had been one of the most acquisitive forces in the chip industry, stitching Broadcom together one deal at a time, until President Donald J. Trump blocked Broadcom’s proposed $117 billion takeover of the chip maker Qualcomm in March 2018 on national security grounds. Broadcom, which was based in Singapore at the time, has moved its headquarters to San Jose, Calif.

Since then, Mr. Tan has diversified his targets. He bought the software company CA Technologies for $18.9 billion later in 2018 and a security division of Symantec for $10.7 billion in 2019.

In those deals, Mr. Tan pursued established companies that are essential to corporate computer infrastructure. CA had started decades earlier by supplying software for mainframe computers and had moved over the years into an array of products, while Symantec made a name as a leader in cybersecurity tools.

Under the agreement, CA and Symantec will become a part of VMware, which will be the new name of Broadcom’s software division. Whether Broadcom will give VMware autonomy in decision making is “the $61 billion question,” Mr. Smith said.

Broadcom said that it would finance the deal with $32 billion in debt from numerous banks. The company said it plans to “rapidly” reduce its debt after the transaction. The chip maker followed a similar pattern in its recent software transactions, bingeing then digesting by prioritizing debt repayments.

With its so-called virtualization software, which allows one computer to act like many machines and essentially makes computing more efficient, VMware would be Broadcom’s flagship asset. VMware boosted the role of software in data centers and revamped how organizations manage their industrial computers. The concepts behind VMware’s technology were foundational to cloud computing, which is dependent on virtualization.

VMware reported revenue of $12.9 billion in its last fiscal year, which ended Jan. 28. That was a 9 percent increase 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 cloud boom, VMware has depended on clients that still operate their own data centers.

The deal is the latest in a series of major changes for VMware. The company, based in Palo Alto, Calif., 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 extricate itself from the personal computer maker that owned a majority of its shares. Dell gained the stake through its acquisition of EMC, which was VMware’s previous majority owner. VMware envisioned independence as a strategic benefit, allowing it to forge new alliances with a variety of technology providers. It also believed that Wall Street would reward it with a higher share price if it separated from Dell.

Instead, the company’s shares declined 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 that VMware had lost luster with public investors because it had struggled to compete with newer cloud technology.

“They’ve been challenged as a business in adapting to this transition,” Mr. Zelnick said.

That stock slump made VMware a more attractive target for Mr. Tan, and potentially other suitors. If shareholders and regulators approve the deal, VMware’s long-desired independence will come to an end.

The terms of the deal with Broadcom include a “go-shop” period, which gives VMware’s management 40 days to seek a better offer from a different buyer. Acquiring VMware could make sense for several other technology companies, including IBM and Intel.

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