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Broadcom Embarks on $5B Debt Deal for VMware Buy

Analyst Team trader
Updated 10 Jul 2024

Broadcom Inc. (NASDAQ: AVGO), a global technology leader, reached out to the US investment-grade bond market this week, raising $5 billion.

This strategic financial manoeuvre is aimed at refinancing part of the loans the company took on for the high-profile acquisition of VMware, an industry giant in virtualisation software.

The issuer structured the debt offering into tranches, with the longest segment yielding 0.95 percentage points above prevailing Treasury rates. Amidst fluctuating interest rates, this represents approximately 1.25 percentage points more than Treasuries, offering investors a sizeable income potential in a shaky bond market.

Previously, Broadcom had organized up to $28.4 billion in new debts to create a financial backbone for the purchase of VMware. This substantial financial coffer was further broken down into three segments: an A-2 facility sized at $10.7 billion, an A-3 facility also at $10.7 billion, and an A-5 facility carrying $7 billion. Such a financing structure ensured Broadcom had the necessary leverage to proceed with the acquisition without unnecessary fiscal strain.


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Financial analysts observe that Broadcom's foothold in the AI market stands to become even more robust with projections that the combined entity could generate between $11 billion and $12 billion in AI revenues come 2024. The upward trend is expected to continue with anticipated revenues scaling to $14 billion – $15 billion in 2025. Such growth figures highlight Broadcom's potential in capitalizing on AI technologies post-acquisition.

Broadcom's stock (AVGO) reflected its solid position and potentially promising future, with gains of 60% on a YTD basis standing out. Investors looking to gain exposure to Broadcom's thriving business can do so through various ETFs, including Invesco QQQ Trust, Series 1 (QQQ), and SPDR S&P 500 (SPY), making the company's success accessible to a broader investment audience.

The melding of Broadcom's extensive semiconductor prowess and VMware's software expertise presents market analysts and investors with a potentially transformational entity. The financial framework now solidly in place, thanks to the $5 billion bond issuance, sets the stage for Broadcom to execute on its strategic initiatives and stake an even larger claim in the future of technology infrastructure.

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The AskTraders Analyst Team features experts in technical and fundamental analysis, as well as traders specializing in stocks, forex, and cryptocurrency.