How Broadcom CEO Tan shaped a tech giant through acquisitions
Send a link to a friend
[May 27, 2022] By
Krystal Hu and Jane Lanhee Lee
(Reuters) - Once a poor "skinny kid" from
Malaysia, Hock Tan was going head-to-head with a legendary U.S.
technology mogul for a transformative acquisition.
Tan placed a call earlier this month to VMware Inc Chairman Michael
Dell, also the chief executive of computer maker Dell Technologies Inc.
He proposed one of the biggest tie-ups in the history of the technology
sector. Broadcom Inc, the chip maker that Tan leads, was willing to
acquire VMware, a cloud software company for $61 billion.
For Tan, now 70, the deal would be the culmination of a string of
acquisitions that has helped him turn Broadcom into a technology
conglomerate worth $225 billion, along the way building a reputation as
an astute dealmaker and ruthless cost-cutter.
Dell, who personally owns 40% of VMware and controls it together with
buyout firm Silver Lake, had a decision to make. Hold out for a better
deal or risk losing out as technology stocks plunged amid concerns about
a looming economic slowdown and rampant inflation.
![](http://archives.lincolndailynews.com/2022/May/27/images/ads/current/ldn_sda_062409.png)
Broadcom offered $61 billion in cash and stock for VMware, a 50% premium
to where the shares of the latter were trading. To clinch the deal, Tan
also agreed to give VMware 40 days from the signing of the deal to
search for another suitor who may offer a better price. VMware said yes.
This account of the negotiations is based on people involved in the deal
who requested anonymity.
Broadcom had been eyeing VMware for months but held off from making an
approach because it was concerned that Dell and Silver Lake would not
engage due to the timing of VMware's spin-off from Dell Technologies in
November 2021. Shareholders risk losing the tax-free status of their
spin-off if their company engages in sale talks in the first six months
after the separation.
Tan's cost-cutting reputation prompted VMware's chief executive Raghu
Raghuram to write to his employees on the deal's announcement to assure
them that the "perception" of Broadcom putting profits ahead of
innovation was "inaccurate". He wrote that Tan "is committed to
cultivating a shared culture of innovation."
That reputation stems from Tan's strategy of acquiring businesses he
calls "franchises" and then slashing what he sees as excessive sales and
marketing expenses and unnecessary investments. He is also quick to
jettison parts of those businesses that underperform.
"He runs Broadcom like an investment portfolio ... they are all
independent fiefdoms," said a former employee at the company who worked
closely with Tan. "If he has a dominant position in any market, he'll go
in and raise those prices."
Tan and Broadcom did not respond to requests for comment.
[to top of second column] |
![](../images/052722PIX/busine35.jpg)
Hock Tan, CEO of Broadcom, shakes hands with then U.S. President
Donald Trump in the Oval Office of the White House in Washington,
U.S. November 2, 2017. REUTERS/Carlos Barria/File Photo
![](http://archives.lincolndailynews.com/2022/May/27/images/ads/current/graue_sda_042021.png)
Tan has said he was an "18-year-old skinny kid" growing up in Malaysia when he
won a scholarship in 1971 to attend engineering school at MIT. His parents could
not afford to send him to college. He went on to earn an MBA from Harvard
University.
He held several executive positions in Malaysia and the United States, before
joining chip maker Integrated Circuit Systems in 1994, rising to become chief
executive in 1999.
It was Silver Lake that helped recruit Tan as chief executive of the company
that would go on to become Broadcom. In 2006, Tan joined Avago Technologies, a
semiconductor company that Silver Lake and KKR Co Inc, another buyout firm, had
acquired the year before for $2.66 billion.
A spate of deals followed as Tan embarked on consolidating the semiconductor
industry, often 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 name. In 2016, Broadcom acquired network gear maker Brocade
Communications Systems Inc for $5.9 billion.
QUALCOMM BID THWARTED
In 2017, Broadcom launched a hostile $117 billion takeover bid for rival
chipmaker Qualcomm Inc that would have been the largest technology deal of all
time. It was thwarted by the U.S. government over concerns that Broadcom, which
was at the time headquartered in Singapore, would become too dominant in the
U.S. semiconductor industry at the expense of innovation.
Tan then turned his attention to software companies, which like semiconductors
can generate reliable cash flow. Broadcom took over business software firm CA
Technologies Inc for $18.9 billion and acquired Symantec Corp's security
division for $10.7 billion.
![](http://archives.lincolndailynews.com/2022/May/27/images/ads/current/LPL_small%201.gif)
Following every acquisition, Broadcom paid down much of the debt it had taken on
to help fund it, using the cash flow of its businesses. This has emboldened Tan
to carry on with his spree of acquisitions, said Matt Britzman, analyst at
Hargreaves Lansdown.
"Broadcom has de-levered quickly after each large acquisition," Britzman said.
(Reporting by Krystal Hu in New York and Jane Lanhee Lee in San Francisco;
Additional reporting by Medha Singh and Chavi Mehta in Bangalore; Editing by
Greg Roumeliotis and Richard Pullin)
[© 2022 Thomson Reuters. All rights
reserved.]This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |