01—Abstract
Summary
Summary of the 8-K/A filed February 8, 2024. Cited figures are marked; the original filing is the authoritative source.
This Form 8-K/A is Broadcom's amendment to its November 22, 2023 completion report for the VMware acquisition.
It supplies VMware's audited fiscal 2023 financials (incorporated by reference), unaudited financials for the nine months ended November 3, 2023, and pro forma combined financial information. The transaction valued VMware at about $86.3 billiona in total merger consideration, paid as $142.50 per share in cash or 0.2520 Broadcom shares, with each form capped at 50% of VMware's shares. Broadcom funded the cash portion with cash on hand and $30.4 billion of new term loans, and recorded a preliminary estimated goodwill of about $53.9 billion and identifiable intangibles of about $46.9 billion.
VMware's recent results were solid. Nine-month revenue rose about 5% to $10.14 billionb, and third-quarter revenue grew about 7.5% to $3.45 billion, led by subscription and SaaS growth of roughly 41%, while license revenue declined. Third-quarter operating income nearly doubled to $699 million and net income rose to $539 million from $231 million.
Offsetting these gains are Dell-related revenue, which accounted for about 35% of VMware's third-quarter revenue, and a $85 millionc accrual for the Cirba patent litigation. On a pro forma basis, Broadcom's fiscal 2023 net revenue would have been about $48.1 billion, with pro forma operating income of about $11.8 billion and pro forma net income from continuing operations of about $8.0 billion, or $16.64 per diluted share. Pro forma total debt rises to roughly $77 billion, versus about $37 billion for Broadcom alone.
The filing also flags a planned sale of VMware's end-user computing business and other real property within a year, with held-for-sale assets of about $7.2 billiond and liabilities of about $3.2 billion. These figures are preliminary, excluding synergies, and subject to change as valuations are finalized.
02—Key points
Key Highlights
- Total merger consideration of approximately $86.3 billion, paid as $142.50 cash or 0.2520 Broadcom shares per VMware share, with 50/50 proration
- Pro forma debt rises to roughly $77 billion after $30.4 billion of new term loans, sharply increasing leverage and interest expense (pro forma interest expense about $4.2 billion for FY2023)
- Preliminary goodwill of about $53.9 billion and intangibles of about $46.9 billion create significant future impairment and amortization exposure (pro forma acquisition-related amortization of about $6.5 billion in cost of revenue and $3.9 billion in operating expenses)
- VMware nine-month revenue grew about 5% to $10.1 billion, with Q3 revenue up about 7.5% and subscription and SaaS revenue up about 41%, while license revenue declined
- Q3 operating income nearly doubled to $699 million and net income reached $539 million, though results were boosted by a low-cost base and rising subscription mix
- Dell is a major related party, accounting for about 35% of VMware's Q3 revenue and continuing as a related-party counterparty after the spin-off
- End-user computing business and certain real property are classified as held-for-sale (about $7.2 billion in assets), signaling planned divestitures within a year that could affect future revenue and reported results
03—Questions
Frequently Asked Questions
How much did Broadcom pay for VMware, and how was it structured?
Total merger consideration was about $86.3 billion. VMware shareholders could elect $142.50 in cash or 0.2520 Broadcom shares per VMware share, with each form limited to 50% of outstanding shares through proration. Broadcom also repaid VMware's roughly $1.3 billion term loan and revolver and settled equity awards.
How will the deal change Broadcom's balance sheet and leverage?
Broadcom issued about 54 million shares and took on $30.4 billion of new unsecured term loans, with maturities of 2, 3, and 5 years at SOFR-based rates. Pro forma as of October 29, 2023, total debt is roughly $77 billion, with pro forma cash of about $18.6 billion and total equity of about $78.1 billion. Net leverage increases materially, which raises interest costs and reduces financial flexibility.
What do the pro forma results suggest about the combined company's earnings?
On a pro forma basis for fiscal 2023, combined revenue is about $48.1 billion and net income from continuing operations is about $8.0 billion, or $16.64 per diluted share. This compares with Broadcom's standalone $14.1 billion net income. The pro forma figures are lower because they include about $6.5 billion of acquisition amortization in cost of revenue, $3.9 billion of other amortization in operating expenses, about $4.2 billion of interest expense, and the excise of the transaction costs. The filing excludes expected synergies.
What are the main risks flagged in the filing?
Key risks include large goodwill (about $53.9 billion) and intangible balances that could be impaired if VMware's business underperforms; preliminary purchase accounting that could change materially; the planned sale of held-for-sale businesses, which may not close as expected; heavy dependence on Dell for revenue; and ongoing litigation, including a $85 million Cirba accrual and a securities class action.
How has VMware's own financial performance trended?
For the nine months ended November 3, 2023, VMware reported revenue of $10.1 billion, up about 5%, and net income of $1.24 billion, up from $820 million. Subscription and SaaS revenue grew strongly while license and software maintenance revenue declined. Operating cash flow was $3.1 billion for the nine months, and cash and equivalents were $6.6 billion at quarter end. The filing discloses that unearned revenue and remaining performance obligations were $12.7 billion, with about 55% expected to be recognized over the next twelve months.
04—Continue