As soon as a poor “skinny child” from Malaysia, Hock Tan was going head-to-head with a legendary US expertise mogul for a transformative acquisition.
Tan positioned a name earlier this month to VMware Inc Chairman Michael Dell, additionally the chief govt of laptop maker Dell Applied sciences Inc.
He proposed one of many greatest tie-ups within the historical past of the expertise sector. Broadcom Inc, the chip maker that Tan leads, was keen to accumulate VMware, a cloud software program firm for $61 billion.
For Tan, now 70, the deal can be the end result of a string of acquisitions that has helped him flip Broadcom right into a expertise conglomerate price $225 billion, alongside the best way constructing a fame as an astute dealmaker and ruthless cost-cutter.
Dell, who personally owns 40% of VMware and controls it along with buyout agency Silver Lake, had a choice to make. Maintain out for a greater deal or danger dropping out as expertise shares plunged amid issues a few looming financial slowdown and rampant inflation.
Broadcom supplied $61 billion in money and inventory for VMware, a 50% premium to the place the shares of the latter had been buying and selling. To clinch the deal, Tan additionally agreed to present VMware 40 days from the signing of the deal to seek for one other suitor who could provide a greater value. VMware stated sure.
This account of the negotiations relies on folks concerned within the deal who requested anonymity.
Broadcom had been eyeing VMware for months however held off from making an method as a result of it was involved that Dell and Silver Lake wouldn’t have interaction because of the timing of VMware’s spin-off from Dell Applied sciences in November 2021. Shareholders danger dropping the tax-free standing of their spin-off if their firm engages in sale talks within the first six months after the separation.
Tan’s cost-cutting fame prompted VMware’s chief govt Raghu Raghuram to write down to his staff on the deal’s announcement to guarantee them that the “notion” of Broadcom placing earnings forward of innovation was “inaccurate”. He wrote that Tan “is dedicated to cultivating a shared tradition of innovation.”
That fame stems from Tan’s technique of buying companies he calls “franchises” after which slashing what he sees as extreme gross sales and advertising and marketing bills and pointless investments. He’s additionally fast to jettison elements of these companies that underperform.
“He runs Broadcom like an funding portfolio … they’re all impartial fiefdoms,” stated a former worker on the firm who labored intently with Tan. “If he has a dominant place in any market, he’ll go in and lift these costs.”
Tan and Broadcom didn’t reply to requests for remark.
Tan has stated he was an “18-year-old skinny child” rising up in Malaysia when he received a scholarship in 1971 to attend engineering faculty at MIT. His dad and mom couldn’t afford to ship him to varsity. He went on to earn an MBA from Harvard College.
He held a number of govt positions in Malaysia and america, earlier than becoming a member of chip maker Built-in Circuit Programs in 1994, rising to grow to be chief govt in 1999.
It was Silver Lake that helped recruit Tan as chief govt of the corporate that may go on to grow to be Broadcom. In 2006, Tan joined Avago Applied sciences, a semiconductor firm that Silver Lake and KKR Co Inc, one other buyout agency, had acquired the 12 months earlier than for $2.66 billion.
A spate of offers adopted as Tan launched into consolidating the semiconductor business, typically with backing from Silver Lake. In 2014, Avago paid $6.6 billion for storage chipmaker LSI Corp. In 2015, it acquired Broadcom for $37 billion and took its identify. In 2016, Broadcom acquired community gear maker Brocade Communications Programs Inc for $5.9 billion.
Qualcomm bid thwarted
In 2017, Broadcom launched a hostile $117 billion takeover bid for rival chipmaker Qualcomm Inc that may have been the biggest expertise deal of all time. It was thwarted by the U.S. authorities over issues that Broadcom, which was on the time headquartered in Singapore, would grow to be too dominant within the U.S. semiconductor business on the expense of innovation.
Tan then turned his consideration to software program firms, which like semiconductors can generate dependable money circulation. Broadcom took over enterprise software program agency CA Applied sciences Inc for $18.9 billion and bought Symantec Corp’s safety division for $10.7 billion.
Following each acquisition, Broadcom paid down a lot of the debt it had taken on to assist fund it, utilizing the money circulation of its companies. This has emboldened Tan to hold on together with his spree of acquisitions, stated Matt Britzman, analyst at Hargreaves Lansdown.
“Broadcom has de-levered rapidly after every giant acquisition,” Britzman stated.
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