How Broadcom CEO Mr Tan shaped a tech giant through acquisitions

Earlier this month, Mr. Tan called VMware Inc. Chairman Michael Dell, who is also the chief executive of computer maker Dell Technologies Inc.

He offered her one of the biggest mergers in the history of the technology sector. Broadcom Inc, the chipmaker that Tan heads, was set to acquire VMware, a cloud-computing software company for $61 billion.

For Tan, now 70, the deal would be the culmination of a series of acquisitions that helped him transform Broadcom into a $225 billion technology conglomerate, while forging a reputation as a shrewd negotiator and ruthless cost-cutter.

Dell, which personally owns 40% of VMware and controls it with buyout firm Silver Lake, had a decision to make. Hold on for a better deal or risk losing out as tech stocks plunged amid concerns about an impending economic slowdown and runaway inflation.

Broadcom offered $61 billion in cash and stock for VMware, a 50% premium to VMware’s stock price. To close the deal, Tan also agreed to give VMware 40 days from signing the deal to seek out another suitor who might offer a better price. VMware said yes.

This account of the negotiations is based on people involved in the transaction who requested anonymity.

Broadcom had been eyeing VMware for months but refrained from making an approach because it feared Dell and Silver Lake would not engage due to the timing of VMware’s spinoff from Dell Technologies in November 2021. Shareholders risk lose the tax-exempt status of their split if their business engages in sales talks within the first six months of separation.

Mr. Tan’s reputation for cost-cutting prompted VMware’s chief executive, Raghu Raghuram, to write to his employees when the deal was announced to assure them that the “perception” that Broadcom is shifting profits before the innovation was “inaccurate”. He wrote that Mr. Tan “is committed to cultivating a common culture of innovation.”

This reputation stems from Tan’s strategy of acquiring businesses he calls “franchises” and then cutting back on what he sees as excessive sales and marketing expenses and wasteful investments. It is also quick to get rid of the parts of these companies that are not performing.

“He’s running Broadcom like an investment portfolio…they’re all independent fiefdoms,” said a former company employee who worked closely with Tan. “If he has a dominant position in a market, he goes there and raises prices.”

Tan and Broadcom did not respond to requests for comment.

Tan said he was a “skinny 18-year-old kid” growing up in Malaysia when he won a scholarship in 1971 to attend engineering school at MIT. His parents couldn’t afford to send him to college. He then earned an MBA from Harvard University.

He held several management positions in Malaysia and the United States, before joining chipmaker Integrated Circuit Systems in 1994, and becoming its managing director in 1999.

It was Silver Lake that helped recruit Tan as CEO of the company that would become Broadcom. In 2006, Tan joined Avago Technologies, a semiconductor company that Silver Lake and KKR Co Inc, another buyout company, had acquired the previous year for $2.66 billion.

A series of deals followed as Tan embarked on the consolidation of the semiconductor industry, often with the backing of 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 networking equipment maker Brocade Communications Systems Inc for $5.9 billion.

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In 2017, Broadcom launched a $117 billion hostile takeover bid for rival chipmaker Qualcomm Inc, which would have been the biggest technology deal ever. It was thwarted by the US government, which feared that Broadcom, then headquartered in Singapore, was becoming too dominant in the US semiconductor industry, to the detriment of innovation.

Tan then turned to software companies, which, like semiconductors, can generate reliable cash flow. Broadcom acquired management software company CA Technologies Inc for $18.9 billion and acquired the security division of Symantec Corp for $10.7 billion.

After each acquisition, Broadcom paid off much of the debt it incurred to help fund it, using cash flow from its businesses. This has emboldened Tan to continue his acquisition spree, said Matt Britzman, analyst at Hargreaves Lansdown.

“Broadcom got out of debt quickly after every major acquisition,” Britzman said.

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