Broadcom takes over Vmware

Dell Technologies is finally spinning off Vmware.

Vmware is an American cloud computing and virtualization technology company headquartered in California. VMware was the first commercially successful company to virtualize the x86 architecture. In 2003, Vmware was bought by EMC (Products related to storage, big data, data analytics, information security, content management, and converged infrastructure), and it became part of the federation of companies under the EMC umbrella.

Vmware operated independently with its own board of directors and its own stock, even after EMC was bought by Dell Technologies in 2015, in a deal valued at $67 billion.

Just recently, Chip powerhouse Broadcom announced its intention to acquire virtualization pioneer VMware for $61 billion. This, in spite of Broadcom’s less than stellar track record with prior acquisitions (CA Technologies in 2018 and Symantec in 2019). While Broadcom vows to learn lessons from previous deals and says this time it will be different, VMware’s enterprise customers are still understandably worried.

Broadcom’s acquisition of Vmware in a massive $61 billion deal is a combination of cash and stock. In addition, Broadcom will be assuming $8 billion in Vmware debt.

Dell’s attempt to spin off Vmware will end up quite well here, given that Michael Dell (Dell’s owner), personally owns more than 40% of outstanding Dell stock. He and his long-time investment partner, Silver Lake, which owns another 10% of the stock have both unsurprisingly given their approval to the deal. According to Gartner data, VMware held the No. 1 position by market share in the global virtualization infrastructure software market in 2021, with a 72% share and revenue of $5.9 billion.

Although Dell has a go-shop provision in the deal, where it has 45 days to find a better deal Should that pass without any change, the deal will still be subject to regulatory oversight, which has not been a rubber stamp recently, especially with large numbers like this.

Deal Structure:

Dell will offer Vmware shareholders a special dividend of between $11.5 and @12 billion. As Dell owns approximately 81% of those shares that would work out to somewhere between $9.3 and $9.7 billion coming into Dell’s coffers when the deal closes later this year.

The spin-off is expected to generate and drive additional growth opportunities both for Dell and Vmware and unlock significant value for the stakeholders. A formalized governance process will be in place related to achieving the commercial goals under the agreement, so it’s pretty firm that these companies will continue to work closely together at least for another five years.


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