Item 8.01 Other Events.
On October 3, 2022, VMware, Inc., a Delaware corporation (the "Company" or
"VMware"), filed with the Securities and Exchange Commission (the "SEC") a
definitive proxy statement/prospectus (the "Definitive Proxy
Statement/Prospectus") with respect to the special meeting of the VMware
stockholders scheduled to be held on November 4, 2022 to, among other things,
vote on a proposal to approve the previously announced acquisition of VMware by
Broadcom Inc., a Delaware corporation ("Broadcom"), pursuant to that certain
Agreement and Plan of Merger, dated as of May 26, 2022 (such agreement, as it
may be amended from time to time, the "Merger Agreement"), by and among VMware,
Broadcom, Verona Holdco, Inc., a Delaware corporation and a wholly owned
subsidiary of the Company ("Holdco"), Verona Merger Sub, Inc., a Delaware
corporation and a wholly owned subsidiary of Holdco ("Merger Sub 1"), Barcelona
Merger Sub 2, Inc., a Delaware corporation and a wholly owned subsidiary of
Broadcom ("Merger Sub 2"), and Barcelona Merger Sub 3, LLC, a Delaware limited
liability company and a direct wholly owned subsidiary of Broadcom ("Merger Sub
3"), pursuant to which, upon the terms and subject to the conditions of the
Merger Agreement, (i) Merger Sub 1 will be merged with and into the Company (the
"First Merger"), with the Company continuing as the surviving corporation in the
First Merger (the "Surviving Corporation") and becoming a wholly owned
subsidiary of Holdco; (ii) following the First Merger, the Surviving Corporation
will be converted from a Delaware corporation into a Delaware limited liability
company (the "Conversion"); (iii) following the Conversion, Merger Sub 2 will be
merged with and into Holdco (the "Second Merger"), with Holdco continuing as the
surviving company (the "Holdco Surviving Company") and becoming a wholly owned
subsidiary of Broadcom; and (iv) following the Second Merger, the Holdco
Surviving Company will be merged with and into Merger Sub 3 (the "Third Merger,"
and together with the First Merger, the Conversion and the Second Merger, the
"Transactions"), with Merger Sub 3 continuing as the surviving limited liability
company and as a wholly owned subsidiary of Broadcom. The registration statement
on Form S-4 filed with the SEC by Broadcom on July 14, 2022, which included a
proxy statement/prospectus with respect to the special meeting of the VMware
stockholders, was declared effective by the SEC on October 3, 2022.
As previously disclosed in the Definitive Proxy Statement/Prospectus, five
complaints have been filed as individual actions in the United States District
Court for the Southern District of New York and one complaint has been filed as
an individual action in the United States District Court for the Northern
District of California. The complaints are captioned as follows: (1) Stein v.
VMware, Inc., et al., 22-cv-06307 (filed July 25, 2022); (2) O'Dell v. VMware,
Inc., et al., 22-cv-06352 (filed July 26, 2022); (3) Whitfield v. VMware, Inc.,
et al., 22-cv-06527 (filed August 1, 2022); (4) Waterman v. VMware, Inc., et
al., 22-cv-06533 (filed August 2, 2022); (5) Laufer v. VMware, Inc., et al.,
22-cv-5146 (filed September 9, 2022); and (6) Chapman v. VMware, Inc., et al.,
22-cv-7735 (filed September 11, 2022) (collectively, the "Prior Complaints").
Additionally, on October 6, 2022, a lawsuit entitled Garfield v. Nicole
Anasenes, et al., 22-CIV-04118, was filed in the Superior Court of the State of
California in and for the County of San Mateo (the "Garfield Complaint"), and on
October 19, 2022, a lawsuit entitled Scott v. VMware, Inc., et al., 22-cv-01372,
was filed in the United States District Court for the District of Delaware (the
"Scott Complaint," and together with the Garfield Complaint and the Prior
Complaints, the "Complaints"). The Complaints generally allege that the proxy
statement/prospectus misrepresents and/or omits certain purportedly material
information. The Complaints assert violations of Sections 14(a) and 20(a) of the
Exchange Act and Rule 14a-9 promulgated thereunder, or similar statutory and
common law claims under California law, against VMware and the members of the
VMware board of directors. The Garfield Complaint also names Broadcom as a
defendant. The Complaints seek, among other things: an injunction enjoining the
consummation of the transactions; direction that a registration statement is
disseminated, including certain additional information, rescission or rescissory
damages in the event the transactions are consummated; declaration that
defendants violated Section 14(a) and/or 20(a) of the Exchange Act, as well as
SEC Rule 14a-9 promulgated thereunder; direction that defendants account for all
damages suffered as a result of any misconduct; costs of the action, including
plaintiffs' attorneys' fees and experts' fees; and other relief the court may
deem just and proper. In addition to the Complaints, beginning on July 20, 2022,
certain purported stockholders of VMware sent demand letters (the "Demands", and
together with the Complaints, the "Matters") alleging similar deficiencies
regarding the disclosures made in the Definitive Proxy Statement/Prospectus, and
seeking additional disclosures to address those purported deficiencies.
While VMware believes that the disclosures set forth in the Definitive Proxy
Statement/Prospectus comply fully with all applicable law and denies the
allegations in the Matters described above, in order to moot the plaintiffs'
disclosure claims, avoid nuisance and possible expense and business delays, and
provide additional information to its stockholders, VMware has determined
voluntarily to supplement certain disclosures in the Definitive Proxy
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Statement/Prospectus related to the plaintiffs' claims with the supplemental
disclosures set forth below (the "Supplemental Disclosures"). These Supplemental
Disclosures should be read in conjunction with the rest of the Definitive Proxy
Statement/Prospectus, which is available at the SEC's website, www.sec.gov, and
which VMware urges you to read in its entirety. Nothing in the Supplemental
Disclosures shall be deemed an admission of the legal merit, necessity or
materiality under applicable laws of any of the disclosures set forth herein. To
the contrary, VMware and the other named defendants specifically deny all
allegations in the complaints, including the allegations that any additional
disclosure was or is required or material.
To the extent that the information set forth herein differs from or updates
information contained in the Definitive Proxy Statement/Prospectus, the
information set forth herein shall supersede or supplement the information in
the Definitive Proxy Statement/Prospectus. All references to sections and
subsections herein are references to the corresponding sections or subsections
in the Definitive Proxy Statement/Prospectus, all page references are to pages
in the Definitive Proxy Statement/Prospectus, and terms used herein, unless
otherwise defined, have the meanings set forth in the Definitive Proxy
Statement/Prospectus. Unless stated otherwise, the new text in the Supplemental
Disclosures is in boldface and underlined to highlight the supplemental
information being disclosed.
SUPPLEMENT TO THE DEFINITIVE PROXY STATEMENT/PROSPECTUS
1. The disclosure under the heading "The Transactions-Background of the
Transactions" is hereby amended and supplemented by including the text
below to the final paragraph that begins on page 53 of the Definitive
Proxy Statement/Prospectus (with the boldface text below indicating
additional language):
On May 21, 2022, the VMware board of directors met with representatives of
VMware management, J.P. Morgan, Goldman Sachs, Gibson Dunn and Silver Lake. At
this meeting, the VMware board of directors was provided with financial
information relating to VMware and Broadcom, including a discussion of the
VMware fiscal first quarter earnings report which would report revenue of
approximately $3.088 billion as compared to Wall Street consensus estimates of
$3.186 billion, earnings before interest and taxes of $771 million as compared
to Wall Street consensus estimates of $861 million and earnings per share of
$1.28 as compared to Wall Street consensus estimates of $1.56 and the Broadcom
fiscal second quarter earnings report which would report revenue of
approximately $8.103 billion as compared to Wall Street consensus estimates of
$7.914 billion, earnings before interest, taxes, depreciation and amortization
of $5.111 billion as compared to Wall Street consensus estimates of
$4.971 billion and earnings per share of $9.07 as compared to Wall Street
consensus estimates of $8.73. The VMware board of directors was also provided by
the representatives of VMware management the VMware management financial
projections. Following discussion, the VMware board of directors approved the
use of the VMware management financial projections by J.P. Morgan and Goldman
Sachs for purposes of performing their respective financial analyses in
connection with their respective fairness opinions to the VMware board of
directors (as more fully described in the sections titled "-Opinion of J.P.
Morgan" and "-Opinion of Goldman Sachs"). Representatives of J.P. Morgan and
Goldman Sachs also provided an updated summary of the implied metrics of
Broadcom's proposal based on recent stock price fluctuations and certain
preliminary financial matters relating to VMware based on the VMware management
financial projections. The VMware board of directors then discussed a potential
counterproposal to Broadcom, including (i) an increase in headline price from
$142.50 to $150 per share, (ii) an increase in exchange ratio from 0.242 to
0.2602, (iii) an increase in the cap on the amount of stock consideration to be
issued by Broadcom to VMware stockholders in the proposed transaction from 50%
to 60%, (iv) a heightened regulatory-efforts standard, (v) an extended outside
date timeline from 15 months to 18 months, (vi) a reverse termination fee
payable by Broadcom equal to 2.5% of VMware's implied equity value giving effect
to the proposed transaction and (vii) an extended go-shop period from 35 days to
40 days, with an additional 15-day window where the lower termination fee of
$500 million would be payable by VMware to Broadcom if VMware accepted a
superior proposal, with a termination fee payable by VMware following such
extended period equal to 2.5% of VMware's implied equity value. The
counterproposal also removed as a condition to closing Broadcom's receipt of a
tax opinion with respect to the tax treatment of the transaction and revised
Broadcom's continuing director proposal to provide that VMware's designee to the
Broadcom board of directors would be a mutually agreed person that need not be a
current director on the VMware board of directors. The VMware board of directors
authorized Mr. Durban to provide and negotiate the counterproposal with Mr. Tan.
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2. The disclosure under the heading "The Transactions-Background of the
Transactions" is hereby amended and supplemented by including the text
below to the second paragraph that begins on page 55 of the Definitive
Proxy Statement/Prospectus (with the boldface text below indicating
additional language):
On May 24, 2022, the VMware board of directors met with representatives of
VMware management, J.P. Morgan, Goldman Sachs, Gibson Dunn, Silver Lake and
Axinn, Veltrop & Harkrider LLP (referred to as Axinn), co-counsel to VMware
regarding regulatory matters. Representatives of J.P. Morgan and Goldman Sachs
reviewed with the VMware board of directors the potential go-shop process,
including potential counterparties to contact, including certain key metrics for
each party and the potential strategic rationale for a potential combination and
potential considerations each potential party may have regarding a potential
transaction. Mr. Rangarajan (Raghu) Raghuram, Chief Executive Officer of VMware,
noted that a senior executive of a large publicly traded corporation (referred
to as Party B) had reached out following the news reports regarding a potential
Broadcom transaction and expressed interest in a potential transaction. Mr. Dell
noted that he had interacted with another senior executive of Party B in Davos
the day prior and such executive did not mention anything regarding a potential
transaction. The VMware board of directors discussed the terms of a revised
draft merger agreement to be transmitted to Broadcom, including (i) reinserting
the reverse termination fee payable by Broadcom in the amount of $1.8 billion,
which was the same amount as the post-go-shop termination fee payable by VMware,
(ii) revising the go-shop termination fee payable by VMware to $700 million,
which was between VMware's initial $500 million go-shop termination fee proposal
and Broadcom's $900 million counterproposal and (iii) accepting that Broadcom
would not be required to make regulatory divestitures if such divested asset,
product or business was not included in the Broadcom Software Group.
Representatives of Gibson Dunn also discussed VMware's and Broadcom's
representations, warranties and interim operating covenants and other terms,
including revising Broadcom's continuing director proposal to provide that
VMware's designee to the Broadcom board of directors would be a mutually agreed
person that need not be a current director on the VMware board of directors.
3. The disclosure under the heading "The Transactions-Background of the
Transactions" is hereby amended and supplemented by including the text
below to the final paragraph that begins on page 56 of the Definitive
Proxy Statement/Prospectus (with the boldface text below indicating
additional language):
Later on May 26, 2022, in accordance with the go-shop provisions in the merger
agreement, at the direction of the VMware board of directors, representatives of
J.P. Morgan and Goldman Sachs began contacting parties about their interest in
participating in the go-shop process. During the go-shop period, representatives
of J.P. Morgan and Goldman Sachs contacted 10 potential strategic acquirors
(including Party A and Party B). Of such contacted parties, two potential
strategic acquirors executed acceptable confidentiality agreements. Neither of
such confidentiality agreements contained a standstill provision. During the
go-shop period, VMware provided confidential information in response to due
diligence inquiries made by these two potential strategic acquirors. At 11:59
p.m. Pacific time on July 5, 2022, the go-shop period expired without any party
submitting a proposal to acquire VMware.
4. The disclosure under the heading "The Transactions-Opinions of VMware's
Financial Advisors-Opinion of Goldman Sachs" is hereby amended and
supplemented by including the text below to the first paragraph under the
title "Illustrative Discounted Cash Flow Analysis" on page 68 of the
Definitive Proxy Statement/Prospectus (with the boldface text below
indicating additional language and deletions are indicated by
strikethrough):
Using the VMware management financial projections, Goldman Sachs performed an
illustrative discounted cash flow analysis on VMware to derive a range of
illustrative present values per share of VMware common stock. Using the mid-year
convention for discounting cash flows and discount rates ranging from 7.5% to
8.5%, reflecting estimates of VMware's weighted average cost of capital, Goldman
Sachs discounted to present value as of April 29, 2022 (i) estimates of
unlevered free cash flow for VMware, as arithmetically calculated by Goldman
Sachs solely using information provided in the VMware management financial
projections and approved by VMware's management for use by Goldman Sachs for
purposes of its opinion
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and financial analyses and referred to as "Unlevered Free Cash Flow (Less
Stock-Based Compensation Expenses)" in the section titled "The Merger-Certain
Financial Projections Utilized by the VMware Board of Directors and VMware's
Financial Advisors," for the nine months ended January 28, 2023 and fiscal years
2024 through 2027 and (ii) a range of illustrative terminal values for VMware,
which were calculated by applying illustrative perpetuity growth rates ranging
from 2.0% to 3.0% to a terminal year estimate of the unlevered free cash flow to
be generated by VMware of $3.7 billion, as arithmetically calculated by Goldman
Sachs solely using information provided in the VMware management financial
projections, and approved by VMware management for use by Goldman Sachs for
purposes of its opinion and financial analyses and referred to as "Unlevered
Free Cash Flow (Less Stock-Based Compensation Expenses)" in the section titled
"The Merger-Certain Financial Projections Utilized by the VMware Board of
Directors and VMware's Financial Advisors".
5. The disclosure under the heading "The Transactions-Opinions of VMware's
Financial Advisors-Opinion of Goldman Sachs" is hereby amended and
supplemented by including the text below to the last paragraph under the
title "Illustrative Discounted Cash Flow Analysis" on page 68 of the
Definitive Proxy Statement/Prospectus (with the boldface text below
indicating additional language and deletions are indicated by
strikethrough):
Goldman Sachs derived a range of illustrative enterprise values for VMware by
adding the ranges of present values it derived as described above. Goldman Sachs
then subtracted from the range of illustrative enterprise values it derived for
VMware the amount of VMware's total debt of $12.0 billion and added the amount
of VMware's cash and cash equivalents of $3.7 billion and strategic investments
of $0.2 billion as of April 29, 2022, as provided by VMware management and
approved for Goldman Sachs' use by VMware management, to derive a range of
illustrative equity values for VMware. Goldman Sachs then divided the range of
illustrative equity values it derived by the numbers a range of 441.8 million to
441.9 million fully diluted outstanding shares of VMware as of the Undisturbed
Date, as provided by VMware management and approved for Goldman Sachs' use by
VMware management, to derive a range of illustrative present values per share of
VMware common stock, rounded to the nearest $0.10, of $100.80 to $148.90.
6. The disclosure under the heading "The Transactions-Opinions of VMware's
Financial Advisors-Opinion of Goldman Sachs" is hereby amended and
supplemented by including the text below to the first sentence of the
last paragraph under the title "Illustrative Present Value of Future
Share Price Analysis" on page 69 of the Definitive Proxy
Statement/Prospectus (with the boldface text below indicating additional
language and deletions are indicated by strikethrough):
Goldman Sachs then subtracted the amount of VMware's net debt (calculated as
total debt and added the amount of VMware's less cash and cash equivalents and
strategic investments) of $5.5 billion, $1.9 billion and $(1.9) billion as of
January 31, 2023, 2024 and 2025, respectively, each as provided by management of
VMware and approved for Goldman Sachs' use by VMware management, to the range of
implied enterprise values to derive a range of illustrative equity values as of
January 31, 2023, 2024 and 2025. Goldman Sachs then divided these implied equity
values by the ranges of 445.5 million to 445.6 million, 446.2 million to
446.2 million and 447.2 million to 447.2 million projected fully diluted
outstanding shares of VMware, as provided by VMware management and approved for
Goldman Sachs' use by VMware management, as of January 31, 2023, 2024 and 2025,
respectively, to derive a range of implied future equity values per share of
VMware common stock.
7. The disclosure under the heading "The Transactions-Opinions of VMware's
Financial Advisors-Opinion of Goldman Sachs" is hereby amended and
supplemented by including the text below to the last two sentences of the
last paragraph under the title "Selected Precedent Transactions Analysis"
on page 70 of the Definitive Proxy Statement/Prospectus (with the
boldface text below indicating additional language and deletions are
indicated by strikethrough):
Goldman Sachs then subtracted from the range of implied enterprise values the
amount of VMware's total debt of $12.0 billion and added the amount of VMware's
cash and cash equivalents of $3.7 billion and strategic investments of
$0.2 billion as of April 29, 2022, as provided by VMware management and approved
for Goldman Sachs' use by VMware management, to derive a range of illustrative
equity values for VMware.
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Goldman Sachs divided the range of illustrative equity values by the number a
range of 441.8 million to 441.9 million fully diluted outstanding shares of
VMware as of the Undisturbed Date, as provided by management of VMware and
approved for Goldman Sachs' use by management of VMware, to derive a range of
implied values per share of VMware common stock, rounded to the nearest $0.10,
of $99.10 to $132.90.
8. The disclosure under the heading "The Transactions-Opinions of VMware's
Financial Advisors-Opinion of J.P. Morgan-VMware Analysis" is hereby
amended by replacing last sentence of the paragraph and the table
immediately following the paragraph that begins on page 75 of the
Definitive Proxy Statement/Prospectus under the heading "Public Trading
Multiples Analysis" with the following:
With respect to the selected companies, J.P. Morgan calculated the ratio of firm
value to unlevered free cash flow for the calendar year 2023 for each company
based on publicly available financial information and Wall Street estimates per
FactSet Research Systems as of May 24, 2022 (referred to as FV / uFCF CY23E).
For VMware, the companies selected by J.P. Morgan were The results of this
analysis are indicated in the following table:
Selected Company FV / uFCF CY23E
Cisco Systems, Inc. 10.5x
International Business Machines Corporation 12.2x
Microsoft Corporation 22.9x
Oracle Corporation 17.0x
SAP SE 18.0x
VMware, Inc.(1) 10.8x
(1) Based on unaffected closing share price as of the Undisturbed Date.
9. The disclosure under the heading "The Transactions-Opinions of VMware's
Financial Advisors-Opinion of J.P. Morgan-VMware Analysis" is hereby
amended by replacing the table immediately following the paragraph that
begins on page 76 of the Definitive Proxy Statement/Prospectus under the
heading "Selected Transaction Multiples Analysis" with the following:
Announcement Date Acquiror Target FV / NTM EBITDA
January 2022 Elliott Investment Citrix Systems, 14.1x
Management L.P. and Inc.
Vista Equity
Partners Management,
LLC
December 2021 Oracle Corporation Cerner Corporation 14.3x
March 2021 Symphony Technology McAfee Corp. 11.9x
Group, LLC (Enterprise
Segment)
August 2019 Broadcom Inc. Symantec 8.2x
Corporation
(Enterprise
Security Segment)
July 2018 Broadcom Inc. CA, Inc. 11.1x
October 2015 Silver Lake Group, SolarWinds, Inc. 16.1x
L.L.C. and Thoma
Bravo, LLC
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April 2015 Canada Pension Plan Informatica 17.9x
Investment Board and Corporation
Permira Advisers LLC
December 2014 Ontario Teachers' Riverbed 11.2x
Pension Plan and Technology, Inc
Thoma Bravo, LLC
September 2014 Thoma Bravo, LLC Compuware 10.3x
Corporation
10. The disclosure under the heading "The Transactions-Opinions of VMware's
Financial Advisors-Opinion of J.P. Morgan-VMware Analysis" is hereby
amended and supplemented by revising the second paragraph under the title
"Discounted Cash Flow Analysis" on page 77 of the Definitive Proxy
Statement/Prospectus as follows (with the boldface text below indicating
additional language):
J.P. Morgan calculated the unlevered free cash flows that VMware is expected to
generate during the remainder of fiscal year 2023 through fiscal year 2027 based
upon the VMware management financial projections. Based on VMware management's
estimates of a 2.5% terminal value growth rate in the industry in which VMware
operates, J.P. Morgan also calculated a range of terminal values for VMware by
applying terminal growth rates ranging from 2.0% to 3.0% to the unlevered free
cash flows of VMware at the end of fiscal year 2027. The unlevered free cash
flows and the range of terminal values were then discounted to present values
using a range of discount rates from 7.5% to 8.5%, which were chosen by J.P.
Morgan based upon an analysis of the weighted average cost of capital of VMware,
taking into account macro-economic assumptions, estimates of risk, VMware's
capital structure and other appropriate factors. The present value of the
unlevered free cash flows and the range of terminal values were then adjusted
for the net debt balance of VMware (approximately $8 billion) and divided by
VMware's fully diluted shares outstanding (calculated using the treasury stock
method). Based on the results of this analysis, J.P. Morgan arrived at a range
of implied equity values per share of VMware common stock, rounded to the
nearest $0.25, of $109.00 to $159.25, which was compared to the unaffected
closing price per share of VMware common stock of $95.71 on the Undisturbed Date
and the Blended Offer Price.
11. The disclosure under the heading "The Transactions-Opinions of VMware's
Financial Advisors-Opinion of J.P. Morgan-Broadcom Analysis" is hereby
amended by replacing the last sentence of the paragraph and the table
immediately following the paragraph that begins on page 78 of the
Definitive Proxy Statement/Prospectus under the heading "Public Trading
Multiples Analysis" with the following:
With respect to the selected companies, J.P. Morgan calculated the ratio of
closing share price to earnings per share for the calendar year 2023 for each
company based on publicly available financial information and Wall Street
estimates per FactSet Research Systems as of May 24, 2022, which is referred to
as P/E CY23E. For Broadcom, the companies selected by J.P. Morgan were The
results of this analysis are indicated in the following table:
Selected Company P/E CY23E
Broadcom Inc. (1) 13.8x
Semiconductor
Analog Devices, Inc. 15.8x
Marvell Technology, Inc. 18.4x
NXP Semiconductors NV 12.4x
Texas Instruments Incorporated 18.7x
Qualcomm, Inc. 9.6x
Software
Check Point Software Technologies Ltd. 15.5x
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Cisco Systems, Inc. 11.9x
F5, Inc. 13.1x
International Business Machines Corporation 12.9x
Oracle Corporation 12.6x
(1) Based on unaffected closing share price as of the Undisturbed Date.
12. The disclosure under the heading "The Transactions-Opinions of VMware's
Financial Advisors-Opinion of J.P. Morgan-Broadcom Analysis" is hereby
amended and supplemented by revising the second paragraph under the title
"Discounted Cash Flow Analysis" beginning on page 78 of the Definitive
Proxy Statement/Prospectus as follows (with the boldface text below
indicating additional language):
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VMWARE, INC. 
