Computer chip and software maker Broadcom will spend about $61 billion to acquire the cloud technology company VMware, one of the biggest deals of the year despite rising inflation and economic uncertainty.
The proposed deal comes just weeks after billionaire and Tesla CEO Elon Musk offered to spend $44 billion on Twitter. Dell Technologies Inc. spun off it's controlling stake in VMware only about 6 months ago.
Broadcom wants to establish a stronger foothold in the cloud computing market and VMware's technology allows large corporations to blend public cloud access with internal company networks.
The Broadcom Software Group will rebrand and operate as VMware once the transaction closes. The cash-and-stock deal also includes $8 billion of VMware net debt.
Under the proposed offer, VMware shareholders can choose to receive either $142.50 in cash or 0.2520 shares of Broadcom common stock for each VMware share.
Michael Dell is still VMware's chairman and he owns 40.2% of the company's outstanding shares. Dell Technologies completed the spin-off of its 81% equity ownership of VMware Inc. in November.
Dell and Silver Lake, which owns 10% of VMware's outstanding stock, have signed support agreements to vote in favor of the transaction, as long as VMware's board continues to recommend the proposed deal.
The transaction includes a “go-shop" provision, so VMware is allowed to actively solicit, receive, evaluate and potentially enter negotiations with parties that offer alternative proposals during a 40-day period.
To help finance the transaction, Broadcom has obtained commitments from a consortium of banks for $32 billion in new, fully committed debt financing.
It's anticipated that current Broadcom Inc. shareholders will own approximately 88% and current VMware shareholders will own about 12% of the combined company.
The boards of both companies have approved the deal, which is expected to be completed in Broadcom’s fiscal year 2023. It still needs approval from VMware shareholders.
Shares of Broadcom dipped before the market opened Thursday, while VMware's stock rose slightly.