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Chipmaker Broadcom Inc to buy VMware for $61 billion


Broadcom Inc (AVGO.O) announced on Thursday that it is going to acquire cloud computing company VMware Inc (VMW.N) in a $61 billion cash-and-stock deal. It is going to be the chipmaker's biggest and boldest bid to make an entry into enterprise software.

The acquisition is the second-biggest acquisition that has been announced globally so far this year. The biggest one was Microsoft Corp's (MSFT.O) $68.7 billion deal to buy Activision Blizzard Inc (ATVI.O), the video game maker.

Broadcom will also assume VMware's $8 billion net debt. The shares of the chipmaker closed up 3.5% and those of VMware rose 3.1%

Hock Tan, Broadcom Chief Executive, built his company into one of the world's largest chipmakers through acquisitions. He is now bringing his deal-making capabilities to the software sector.

The deal is expected to triple Broadcom's software-related revenue to around 45% of its total sales. With the acquisition of VMware, Broadcom will immediately be validated as a major software player.

The agreement will also be a coup for Michael Dell, Chief Executive of Dell Technologies Inc (DELL.N), who, last year, spun VMware out of the computer maker. He owns a good 40% stake in VMware, whereas his financial backer Silver Lake, which is a private equity firm, owns 10%. However, they both have agreed to vote in favor of the deal.

VMware has still 40 days to consider other offers. If VMware chooses another offer after the lapse of this period, the firm will have to pay $1.5 billion to Broadcom as a break-up fee. But, if it picks another offer before the end of this period, a termination fee of $750 million will have to be paid by VMware to Broadcom.

First of all Broadcom's tried to step into the software field in 2018 with its attempt to acquire Qualcomm Inc (QCOM.O), the mobile chip giant. The attempt was blocked by former U.S. President Donald Trump on national security grounds.

Since then, Broadcom has taken over CA Technologies Inc, the business software firm, for $18.9 billion and has also acquired the security division of Symantec Corp for $10.7 billion. It also explored all the way outs to acquire SAS Institute Inc, the analytical software company, but it did not proceed with a bid.

The deal has come at a time when the Biden administration is increasingly pushing for more competition in all the sectors ranging from agriculture to technology.

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