Billionaires make dizzying negotiations to close one of the biggest tech deals

For a complex transaction that had eight banks and four law firms listed as advisors, the deal boiled down to just two individuals quickly agreeing to one of the largest technology deals ever recorded in the world.

Broadcom’s Hock Tan and computer maker Dell’s Michael Dell, architects of more deal deals than many Wall Street veterans, were key organizers of chipmaker Broadcom’s $69.1 acquisition of VMware. billion (R$ 326.8 billion).

“Tan called Michael Dell two weeks ago,” said one person with direct knowledge of the matter. “A lot of things were done from boss to boss, banks weren’t necessarily included.”

This account of how a dizzying deal was made is based on several people with knowledge of the negotiations. They said the two billionaires moved remarkably quickly to create a diversified tech giant just as rivals retreat amid plummeting tech stocks.

It’s also the biggest gamble by Malaysian-born Tan, known as the chip industry’s biggest consolidator, who turned Broadcom into a giant bigger than Oracle, Intel, Cisco and IBM in market value.

Having been forced to accept new deals in the semiconductor sector, Tan would face stiff opposition from competitors and regulators, so he shifted his focus to software, with VMware becoming his latest target.

“Tan is very contrarian,” said Tony Wang, who covers Broadcom as an analyst at T Rowe Price, one of its biggest outside shareholders. “He doesn’t care what Wall Street thinks and is very opportunistic,” he said.

When negotiations began earlier this month, Dell welcomed Tan to his palatial mansion in Austin, Texas. It was the same scenario where, seven years ago, he convinced then-CEO of EMC, Joseph Tucci, to sell the technology conglomerate – which owns VMware – to Dell Technologies for $67 billion.

A few days later, bankers were called in to help Tan raise the $32 billion needed to fund the transaction. The deal was codenamed “Project Atlas”.

Advisors referred to VMware as Verona, after the Italian city that was the setting for Romeo and Juliet, and Broadcom as Barcelona, ​​the Catalan capital.

Despite attempts at cover-up, news of a potential acquisition leaked out. That forced Tan and Dell to close the deal faster than they expected, leading them to include a “go-shop” clause in case another buyer came along with a higher offer.

Wednesday’s acquisition offers “shareholders and employees the opportunity to participate in significant gains,” said Dell, who is expected to earn $24 billion from the sale, while his partner in private equity Silver Lake owns a stake in VMware worth US$6 billion (R$28.4 billion).

Dell and Silver Lake could receive up to $15 billion in cash from Broadcom, but the 50% equity component in the merger, designed to protect Broadcom’s investment grade, shows its willingness to bet on Tan. .

An engineer trained at the Massachusetts Institute of Technology, Tan was named chief executive of Broadcom’s predecessor, Avago Technologies, in 2006 after it was acquired by private equity groups KKR and Silver Lake for $2.1 billion. Since then, he has increased the company’s value more than a hundredfold to a market capitalization of $225 billion.

From the start, Tan focused on bolstering the operations of what was then a specialist seller of semiconductors for computer mice and cell towers.

KKR and Silver Lake took Avago public in 2009, but it wasn’t until four years later, in 2013, that Tan struck his first notable deal, acquiring smartphone chip maker CyOptics for $400 million.

“Hock only became a buyer after he had a very firm grasp of the granular microeconomics of how to run a semiconductor company at scale,” said a person close to the entrepreneur.

From tax-advantaged headquarters in Singapore, Tan caught the business bug. He acquired LSI, a chip designer for data centers, for $6.6 billion in 2014, and the following year he pulled off the much more ambitious $37 billion (R$175 billion today) acquisition of Broadcom.

The deal turned Avago, which was renamed Broadcom but kept its “AVGO” ticker, into a leading supplier of chips used in cars, industrial robots and even miniature computers like the Raspberry Pi.

In 2017, then US President Donald Trump celebrated Tan as a corporate hero, inviting him to the White House to commemorate his decision to return Broadcom to US shores, abandoning its Singapore headquarters amid a cutback. of corporate taxes.