What VMware Workers Need To Know If Broadcom Deal Closes

“It’s OK for us to have some questions and concerns based on what has happened in the past,” VMware CEO Raghu Raghuram tells employees.

During a town hall meeting announcing the potential $61 billion merger of VMware with Broadcom, VMware executives cherry-picked questions from the company’s 35,000 employees, but did say its suitor was interested in the talent of employees and relationships they have cultivated with customers.

“Remember it’s business as usual right now,” said VMware’s chief people officer, Betsy Sutter. “And then we’ve also talked about various other strategies in terms of keeping people engaged and at VMware. So all good, all good so far in terms of how we’re moving forward with our current programs. But we have yet to redefine what the future looks like, and we’ll do that with Broadcom.”

VMware executives praised the efforts of the board and workers for creating an opportunity for the deal, but they had few guarantees to offer VMware employees around job retention, or benefits, such as work from home.

VMware CEO Raghu Raghuram told employees that they are right to be concerned about what the future holds for them.

“It’s OK for us to have some questions and concerns based on what has happened in the past,” he said referring to past Broadcom deals with CA and Symantec. “But so far what we have heard from them, it has been quite different.”

Rumors about a deal between the two companies began swirling last week, and were then confirmed on May 26 with an announcement from Broadcom. The blockbuster deal would end VMware’s months of independence as a standalone company after it was spun off from Dell last October.

Many VMware partners have expressed concern that such a merger would upend the solid channel relationship that resellers have with the company. However, Broadcom has sought to play down that talk, with Broadcom Software President Tom Krause saying they have learned from their past and are ready to “embrace the channel.”

Broadcom’s Past Behavior May Not Indicate Its Plans For VMware

Broadcom’s mixed reputation among CA and Symantec customers – two of its previous buys -- is driving concern from employees about customer relationships, as well as their own jobs. VMware president Sumit tried to allay worried employees, by saying it seems, this time, Broadcom wants to do “the opposite” of what it did with those companies.

“Listen, the customer reputation of Broadcom can be negative and also the team members and the actions they have taken in the past with their software businesses have impacted the employees and team members …. Just because they have done what they have done with Symantec and CA is (not necessarily) something that they intend to do with VMware, because we’ve heard quite the opposite so far.”

“Continuing Employees” Will Be Level-Funded

In section 7.7 of its takeover bid, Broadcom has agreed to give “continuing employees” -- those VMware workers who remain after the acquisitions -- “at least the same wage rate, or base salary.” It will also honor existing language around incentive pay, including cash and equity. Health, welfare, and severance benefits that are “no less favorable” than the employee currently has will also be provided.

Continuing employees would also be eligible immediately for benefits under Broadcom, once the deal is approved.

Broadcom’s Potential Cost-Cutting Plans

Broadcom is forthcoming that it is looking to cut overlapping “functions” between the two companies, as a way to increase profitability.

In a slide it published last week to investors titled “Multiple Levers To Increase VMware’s Profitability” Broadcom says it will increase VMware’s profitability by 80 percent, from $4.5 billion last year, to $8.5 billion in the future.

Broadcom’s plan to get there, includes targeting efficiencies in sales and marketing, as well as “eliminate duplicative administrative functions” across “IT, finance, legal, human resources and facilities.”

When those cost-cutting plans might come is not spelled out, however Broadcom did provide a history of how quickly it sheds debt, post-acquisitions.

Broadcom Gets Out Of Heavy Debt Quickly

Broadcom has borrowed large sums before. This time it is planning to go into debt to the tune of $32 billion in order to buy VMware, which it is expecting to borrow from several banks, should the deal go through.

In 2013, when Broadcom – at the time called Avago -- bought LSI for $6.6 billion in cash it took six quarters for it to reduce its debt to EBITDA ratio from 4.4x to 1.2x. When Avago bought Broadcom for $37 billion in 2015 and rebranded as Broadcom, the newly combined company took on $9 billion in debt. Yet within five quarters it had reduced its debt to EBIDTA ratio from 3.8x to 1.7x.

In 2018, Broadcom bought CA Technologies, levering it up to 3.2x which it pulled down to 2.6x in four quarters. When Broadcom bought Symantec in 2020 it funded the entire $10.7 billion deal with debt, launching it to a 3.6x debt to EBITDA ratio which, in about two years, it has now reduced to 2.1x.

Broadcom included this information in an investor packet to show how quickly it has executed on its path to profitability when it took over those companies.

Work From Home?

VMware leaders had no assurances for employees as to whether Broadcom would keep existing work-from-home agreements. Chief People Officer Betsy Sutter said the firm is talking with Broadcom, but had no assurances.

“The chat is blowing up on work from home. I’ve never seen it move that quickly,” she said. “You know, our commitment to a distributed workforce and standing up a distributed workforce model with choice and flexibility at the core remains. Those conversations with Broadcom have not begun. I hear you. Clearly I see it in the chat, how critically important this is to you to have those conversations. But for right now, we’re going to continue to build out a distributed workforce model and culture.”