Broadcom ‘Unsolicited’ VMware Offer Was Not Expected
VMware Chairman and Dell Technologes CEO, Michael Dell said the company wasn’t expecting the $61 billion acquisition offer from Broadcom but is now bullish about VMware’s future as part of Broadcom.
“We received this unsolicited offer from Broadcom—we weren’t expecting that,” said Dell during a recent Town Hall meeting with VMware employees, according to a transcript of the event. “We have a duty to consider unsolicited offers. And so we did that. There was a lot of work by the full board that went into that and whether it was in the best interests of the company and the shareholders.”
Not only was the deal unexpected, but the acquisition process is moving at a rapid pace, according to Betsy Sutter, VMware’s executive vice president and chief people officer.
“I just want to say this is all moving very, very fast,” Sutter said during the Town Hall. “But this persistent interest in VMware is just an indicator of how important we are to our customers, our partners in the industry.”
After VMware did its “fairly extensive due diligence”—which included extensive meetings with outside advisors—VMware’s board believed that the deal would “propel the company even further” in helping customers transform into digital businesses, Dell said.
“Broadcom is a very successful, strong technology company with a track record of R&D investment. And their R&D investment has been growing quite tremendously over the last decade or so,” said Dell, who is also VMware’s largest shareholder, owning around 41 percent share of the company.
[Related: Broadcom’s VMware Acquisition: 5 Key Customer And Cost Figures To Know]
Dell said Broadcom’s focus on solving complex IT infrastructure problems “certainly is in close proximity to VMware’s role” with customers and partners.
“As we met with the Broadcom team, they explained to us that they intend to invest and grow the value of VMware’s successful businesses and to make VMware the flagship of the software business inside Broadcom,” said Dell. “They also have an appetite to continue to grow after this acquisition, both organically and inorganically. So I’m excited about the opportunity to see VMware’s heritage of innovation and invention continue and deliver even greater value for the combined set of stakeholders—including customers, partners and employees.”
VMware And Broadcom R&D Figures
Michael Dell highlighted that Broadcom has invested $4.9 billion in R&D in 2021.
For its most recent second-quarter 2022, Broadcom spent $1.26 billion on R&D to achieve its $8.1 billion in total sales. Broadcom’s R&D costs represent approximately 15 percent of the company’s total revenue.
Comparatively, in VMware’s most recent first fiscal quarter 2023, the company spent $774 million on R&D. This R&D cost represented about 25 percent of VMware’s total $3.09 billion in revenue.
There have been fears among channel partners that Broadcom’s $61 billion acquisition of VMware will cause VMware’s innovative-driven market strategy to be cut down to increase profitability. Broadcom said it will, in fact, focus its investment on VMware’s core, mature product lines.
“In terms of R&D, we’re going to reinvest back in the core business, the core franchises,” said Tom Krause, president of Broadcom’s Software Group, during a call with media and analysts last week. “If you think about the three different pillars of this business, it’s really the core infrastructure business—vSAN, vSphere, vRealize—these are the businesses that are core to driving the bulk of the revenues. And that’s where the reinvestment is going to occur.”
Broadcom has approximately 20,000 employees worldwide, while VMware has over 35,000 employees. If completed, Broadcom’s Software Group will rebrand and operate as VMware, which will incorporate Broadcom’s existing infrastructure and security software solutions.
Michael Dell Bullish About ‘Great’ VMware-Broadcom Acquisition
It is key to note that VMware was part of Dell Technologies up until just last year.
In 2016, Dell acquired EMC—which owned VMware—for $67 billion. The two companies created innovative joint technologies together, such as market-leading VxRail for hyperconverged infrastructure, while also forming successful go-to-market and sales synergies via channel partners.
After five years of being part of Dell Technologies, VMware was spun out of Dell in November 2021—marking the first time since 2004 that VMware was an independent company.
Overall, Michael Dell said combining Broadcom’s complementary software portfolio and broader business with VMware’s portfolio will provide customers with next-level solutions.
“VMware as the broader software capability within Broadcom is going to provide customers with an expanded platform to continue to enable critical infrastructure in public clouds, private hybrid clouds at the edge, and helping our customers accelerate their digital transformation,” said Dell.
“I’m excited to see these two innovation-centric and engineering-centric focused companies come together and look forward to all the great things that the new company is going to be able to do for customers,” Dell said.
Broadcom expects to close its $61 billion acquisition of VMware by January 2023.
VMware has a 40-day “go-shop” provision that allows VMware and its board to actively solicit, receive, evaluate and potentially enter negotiations with parties that offer alternative proposals. The provision expires on July 5, 2022.