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Broadcom takeover deal for VMware faces no rival bids

Lack of alternative offers means sale may go ahead with expected completion in fiscal 2023

Updated Broadcom's proposed buyout of VMware looks set to proceed after the "go-shop" period for alternative offers expired without any rival bidders coming forward.

The move could mean bad news for many customers if Broadcom follows a policy of focusing only on the needs of the largest corporate accounts.

Broadcom announced its intention to acquire VMware on May 26 in an agreement that valued the cloud and virtualization company at $61 billion. It is subject to the usual regulatory approvals and other closing conditions, including approval by VMware shareholders, but the merger Ts&Cs also included a "go-shop" provision under which VMware could solicit alternative proposals during a 40-day period following the signing.

That 40-day period expired at 23:59 Pacific Time on July 5, but no rival bidder has emerged to offer a superior proposal, according to Bloomberg, which cited loquacious sources said to be familiar with the matter. This clears the way for the Broadcom takeover to proceed, a transaction that is expected to complete in Broadcom's fiscal 2023, which runs from November 2022 until October 2023.

We do note that the European Union is reportedly investigating the multi-billion-dollar deal, so that may or may not throw a spanner in the works.

The sale has been met with mixed reactions from VMware customers, some of whom fear Broadcom will cut back on research and development costs and focus on extracting revenue from the largest customer accounts.

As reported by The Register last month, analyst companies including S&P Global Market Intelligence and Gartner have offered negative evaluations of Broadcom's takeover. Their conclusions were based on surveys of VMware customers who fear the potential impact on software licensing terms and conditions, with 56 percent expressing negative sentiments and over a quarter of them rating their response to the purchase as "extremely negative."

Broadcom offered some clues to its post-merger plans for VMware in the company's earnings call in May. Tom Krause, president of Broadcom's Software Group, said it planned to phase out perpetual licenses in favor of subscription-based licensing for customers over the next few years.

Krause appeared to suggest that Broadcom would both invest in VMware's product portfolio and continue to address the needs of VMware's broader customer base, currently believed to be over 300,000 accounts.

This would contrast with the strategy adopted by Broadcom with its earlier acquisitions such as CA Technologies and Symantec's enterprise portfolio, where the company focused on direct relationships with the largest global companies among the customer base and smaller companies began to drift away because of a lack of engagement.

Gartner's advice for VMware customers was to lock in long-term pricing with VMware before the transaction closes on the Broadcom takeover. It said that organizations should ensure that VMware commits to specific provisions in writing before making large or strategic financial investments, and they should negotiate caps on future increases to subscription license fees.

VMware was spun out from out Dell Technologies late last year. Michael Dell and Silver Lake investors, which together own the majority of the VMware shares, agreed to vote in favor of the Broadcom deal. ®

Updated to add at 2255 UTC, July 6

VMware has filed a regulatory document that states "no alternative proposals to acquire VMware were received."

The document adds: "The transaction remains subject to the receipt of regulatory approvals and other customary closing conditions, including approval by VMware stockholders, and is expected to close in Broadcom's fiscal year 2023."

Broadcom is in the third quarter of its 2022 fiscal year, and usually ends its year on October 31 So VMware has at most 15 months left as an independent entity, unless regulators step in or something else derails the deal.

Additional reporting by Simon Sharwood

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