VMware takeover by AVGO: How much will shareholders receive for their VMW stock from Broadcom?
By Jenny McCall
Updated
Tech giant Broadcom Inc's (AVGO), acquisition of software company, VMware (VMW) was announced on 26 May 2022.
A provider of multi-cloud services for apps, VMW is to be acquired for $61bn (£50bn) on 25 May 2022, based on the closing price of Broadcom common stock. Since the announcement, Broadcom's share price has been up 3%. But how much will shareholders receive for their VMW stock from Broadcom (AVGO)?
In a statement put out by VMware, the group said under the terms of the agreement, which was unanimously approved by the boards of directors of both companies, VMware shareholders can either elect to receive $142.50 (£118.55) in cash or 0.2520 shares of Broadcom common stock for each VMware share they have.
Broadcom (AVGO) also appears to be going aganist the grain, the tech group announced last month that it won't increase it's prices.
President and CEO for Broadcom, Hock Tan wrote in a blog post on 26 October that its growth strategy is not focused on raising prices of VMWare (VMW) products but “creating technology and products that provide clear value to customers and continuing to improve them”.
“We fuel growth by offering more and better products so customers are using more of our entire portfolio of technology products, rather than just one or two,” Tan wrote in his post.
“By delivering long-term value to customers and investing in improved, customer-focused R&D, we can innovate, scale and offer better products without raising prices.”
What is your sentiment on AVGO?
Broadcom Inc (AVGO) share price chart
Green light from IBM (IBM) CEO
IBM (IBM) CEO Arvind Krishna gave his opinion on the impending deal at an event in October. Krishna said that VMware remains an important partner for his company and if VMware keeps investing in its products, it should remain “a strong franchise.”
VMware said that the acquisition is expected to add approximately $8.5bn of pro forma pre-tax earnings within three years post-closing.
“Pro forma for each company's fiscal year 2021, software revenue is expected to account for approximately 49% of total Broadcom revenue,” a VMware statement said.
Approximately 50% of VMware’s shares have been exchanged for cash consideration and 50% exchanged for Broadcom (AVGO) common stock.
“Upon closing of the transaction, based on the outstanding shares of each company as of the date hereof, current Broadcom shareholders will own approximately 88% and current VMware (VMW) shareholders will own approximately 12% of the combined company on a fully diluted basis,” a Broadcom statement said.
Delivery of valuable and innovative solutions
Michael Dell, the American billionaire, philanthropist and the founder of Dell Technologies (DELL), purchased VMware Inc in 2015. Dell and Silver Lake, a private equity firm, own 40.2% and 10% of VMware shares outstanding, respectively.
Both parties signed support agreements to vote in favour of the transaction, but only if the VMware Board continues to recommend the proposed transaction with Broadcom.
Michael Dell, Chairman of the VMware Board, said: "Together with Broadcom (AVGO), VMware will be even better positioned to deliver valuable, innovative solutions to even more of the world's largest enterprises. This is a landmark moment for VMware and provides our shareholders and employees with the opportunity to participate in meaningful upside."
It has been reported that Michael Dell will make approximately $20bn from the sale of VMware.
Dell Technologies (DELL) share price chart
AVGO looks to dodge phase two EU investigation
AVGO is also now seeking to dodge the phase two stage of the EU’s investigation and fast-track the deal, so that it can be approved – as quickly as possible.
Broadcom (AVGO) says the deal will create more competition in the cloud market, where there are already very big players and the chipmaker is hoping the antitrust approval in the EU will be sped up.
Broadcom names market competitors Amazon (AMZN), Microsoft (MSFT) and Google (GOOG) to its advantage, and states that the deal does not have to undergo a phase two regulatory approval. If the takeover did go to phase two, it would mean the European Commission (EC) would take at least four-months to investigate the acquisition.
Broadcom (AVGO), which is hoping it can shave at least four months of the timeline, will essentially argue that the takeover will boost competition in the market with other cloud giants such as AMZN and MSFT.
“For the Commission to go to phase two, there has to be a real competition problem - horizontal, vertical, foreclosure risk - and I think we can show those risks don’t really exist in this case,” a source close to the deal told Reuters.
Broadcom (AVGO) says acquisition of VMW adds value
Tan, President, and Chief Executive Officer of Broadcom (AVGO) said that this acquisition only adds to the company’s successful track record of mergers and acquisitions (M&A).
"This transaction combines our leading semiconductor and infrastructure software businesses with an iconic pioneer and innovator in enterprise software as we reimagine what we can deliver to customers as a leading infrastructure technology company,” Tan said in a statement.
“We look forward to VMware's talented team joining Broadcom, further cultivating a shared culture of innovation, and driving even greater value for our combined stakeholders, including both sets of shareholders.”
In an interview, VMware CEO Raghu Raghuram said he expected “a large chunk of VMware operations to continue as is”, adding that Broadcom (AVGO) would be making VMW “a flagship brand”.
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