The rumor had been circulating for a few weeks. It’s now official, the semiconductor giant Broadcom has presented a takeover bid for VMware, another new technology behemoth, specializing in cloud software and services and data centers that serve as IT infrastructure for banks, hospitals , or airlines. The deal, which values VMware at $61 billion, would be one of the biggest acquisitions of the year in the tech world.
Above all, this merger between two American groups testifies to the new tensions at the global level which are pushing multinationals to join forces to become leaders in growing markets.
Broadcom and VMware are both ogres in terms of M&A, like the acquisition of other heavyweights, such as CA Technologies, Symantec for the first, and on the same side VMware, itself acquired by EMC then by Dell. The blow therefore emanates this time from the Broadcom CEO Hock Tan, known for his acquisition binge since his Singaporean company Avago itself took control of Broadcom in 2015.
In 2017, Broadcom had put on the table 130 billion dollars to buy its competitor Qualcomm, but this merger had been blocked by the government of President Donald Trump. The latter had estimated that the operation would undermine national security, because the headquarters of Broadcom was in Singapore.
This time, the wedding project received the first endorsement from entrepreneur Michael Dell, who controls 40.2% of the capital of vmwareas well as the investment company Silver Lake, which owns 10%, thereby guaranteeing the success of the operation.
A purely financial operation?
Some analysts, however, see it as a purely capitalistic operation. In an internal letter sent to VMware employees worldwide that The gallery consulted, CEO Ragu Raghuram makes no secret of it: “ Our Board of Directors has concluded that this is a more effective way to increase the value held by our shareholders, particularly in the current uncertain economic climate.”. According to the CEO, the operation that could take “6 to 12 months“before being finalized”in Broadcom’s fiscal year 2023“, values VMware at $70 billion.
At the head of the group, which defines itself as a “multi-cloud” player, the CEO nevertheless rejects the fears: “ Many of you have a perception of Broadcom as being focused on maximizing financial metrics, rather than maximizing innovation. This is not correct because Broadcom has a history showing that it performs on both counts”.
Broadcom is offering shareholders to vmware to receive $142.50 per share, or 0.2520 Broadcom shares per share vmware. A distribution will be made, which will lead the purchaser to finance half of the operation in cash and the other half in securities, according to a press release published Thursday.
The diversification of heavy goods vehicles
With this acquisition, the semiconductor manufacturer aims this time to expand its activities. Integrating VMware, it intends to become a global service provider for companies, with the ability to offer them both its semiconductors and remote computing infrastructures. Hock Tan, quoted in the press release, intends to make the new combined entity “a leader in technological infrastructures”.
The semiconductor market has the particularity of being cyclical and therefore with potential air pockets to cushion, all the more so in a context of international tensions. With VMware, it is thus positioning itself on dematerialized computing (cloud) and virtualization, which the rise of virtual exchanges in the Metavers universes could well accelerate.
This trend towards diversification also operates among competitors such as Samsung, which announced this week a mega investment plan of 356 billion dollars to invest in its electronic chip factories but also to accelerate biotechnology.
In addition to diversification towards other strategic sectors, there is also the concentration, which began several years ago, in the image of Broadcom’s competitors such as AMD and Nvidia. Before this deal is completed, it is also not certain that the two other American heavyweights, Intel and Cisco, will not come to make a counter-offer on VMware.
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