VMWARE: Broadcom purchase plan | Analysis from Brian Madden

 

Brian Madden’s brutal and unfiltered thoughts on the Broadcom / VMware deal

Here is the article.  

1. Broadcom is offering $142.50 per share. VMW last closed at $95.61 the day before news of this deal leaked, so that’s a REALLY high premium.
2. in order for Broadcom to make this deal work, they will increase VMware’s EBITDA from $3.5B to $8.5B which they can only do by shredding the company.
3. There will be massive layoffs. Massive. Maybe 25,000. This is not speculation. This is math.
4. VMware revenue has been flat for a long time. While on paper it looks like they’ve been adding about $1B per year, in reality they bought that much of that growth through acquisitions. (Nicira, AirWatch, Heptio, Avi, Pivotal, Cloud Health, Carbon Black are the big ones off the top of my head.) 
5. If the fully-staffed "future is rosy" VMware of the past 5 years couldn’t do it, why do you think that exponential revenue growth will suddenly start under PE-like ownership of Broadcom?
6. Instead, Broadcom will find that extra $5B per year by pulling the “lower expenses” lever. What is VMware’s #1 expense? Employee compensation. (By a lot.) And what’s the #2 expense? Real estate (office leases).
7. Broadcom currently has about double VMware's revenue ($27B vs $13B), but with about half the employees (20k versus 40k). So Broadcom today gets a 4x better return per employee than VMware. In Broadcom land, $13B in revenue should align to about 10,000 employees, not 40,000 (there's your 70% cut). Broadcom is not spending $70B for VMware to go from a $27B 20k employee company to a $40B 60k one.