Broadcom (AVGO) has agreed buy VMWare (VMW) in a cash-and-stock deal that would value the former cloud computing division of Dell Technologies (DELL) at around $61 billion.
Broadcom said VMware shareholders can take either $142.50 in cash for their holdings, or 0.2520 shares of Broadcom common stock for each VMware share. The deal, which includes Broadcom's assumption of around $8 billion in VMware debt, represents a 44% premium to the closing price of VMware common stock on May 20, the companies said. Broadcom shareholders will own around 88% of the company when the deal is complete, with VMware holding the remaining 12%.
Broadcom also pre-released its second quarter earnings, posting adjusted profits of $9.07 per share on revenues of $8.1 billion. The chipmaker added that it will maintain its current dividend policy of delivering 50% of its prior-year free cash flow to shareholders.
"Building upon our proven track record of successful 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," said CEO Hock Tan. "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."
VMWare shares, which are up more than 29.8% so far this following reports of the potential Broadcom takeover, were marked 3.7% higher in early trading to change hands at $125.03 each. Broadcom shares, meanwhile, rose 4.1% to $553.45 each.
"Combining our assets and talented team with Broadcom's existing enterprise software portfolio, all housed under the VMware brand, creates a remarkable enterprise software player," said VMware CEO Raghu Raghuram. "Collectively, we will deliver even more choice, value and innovation to customers, enabling them to thrive in this increasingly complex multi-cloud era."
VMware shares neared a five-year low last week after the U.S. Cybersecurity and Infrastructure Security Agency ordered federal agencies to update or remove its products following a discovery that hackers had found a back-door vulnerability that could put government computer systems at risk.
The group will report its fiscal first quarter earnings after the close of trading on Thursday, with analysts looking for a bottom line of $1.73 per share on revenues of $3.46 billion.
