President, Broadcom Software Group at Broadcom
Thanks, Hock. Now turning to slide 7; as Hock previewed, VMware sits at the nexus of the largest opportunity in enterprise infrastructure today. In essence, VMware is a foundational platform that enables enterprises to drive competitive advantage with technology by leveraging two operational modes to develop and run their applications. First, VMware serves many of the same types of customers that we have worked with at Broadcom, large multinational organizations with complex IT challenges. These enterprises want to move fast and innovate, but also mitigate risk by retaining control of their underlying infrastructure and data.
To do this, enterprises are deploying applications in their own data centers, but need software to enable them to develop and run these applications in a flexible, agile and cost-effective fashion. This private cloud market is very large and workload growth in the private cloud continues to grow. Beyond the private cloud, as we all know public cloud workloads are growing rapidly. The public cloud brings unprecedented scalability and cost benefits and also enables enterprises to leverage cutting-edge technologies to drive their business forward.
So we think it is clear that both of these modes, private cloud and public cloud are going to be important for enterprises going forward. Turning to slide 8; VMware is a truly foundational infrastructure software platform that is critical for enterprises to leverage the benefits of both the private and public cloud. We have tremendous respect for the leading platform VMware has built, supported by an incredible team of R&D talent. By bringing our teams together, we will deliver even more innovation to our customers.
As we think about it, VMware's platform really consists of 3 pillars: first, within the core private cloud infrastructure pillar is the category defining vSphere Server Virtualization platform, vSAN Data Storage Virtualization Solution, vRealize Cloud Management platform that provides automation, analytics and life cycle management for private cloud workloads; and NSX, which enables enterprises to manage their entire physical network as a single entity from a single pane of glass. Next, VMware's Tanzu platform provides an end-to-end modern application management platform for building, deploying, securing and operating applications in private, hybrid or public cloud environments.
Finally, VMware has a robust portfolio of end user and security solutions that enable employees to securely work from anywhere, anytime and with seamless employee experiences. On slide 9, let me double-click on the first pillar, as this makes the bulk of VMware's revenue contribution today and is positioned to continue to grow well going forward. VMware pioneered the concept of virtualization, and today this technology is foundational to the development and computing operations of basically all enterprises in the world.
Over time, VMware has evolved its value proposition from core server virtualization to enabling one to virtualize the underlying compute resources of the entire data center, which is the private cloud. They further extended this value proposition with NSX and vSAN by enabling software-defined networks and storage. Then with vRealize, VMware made it extremely easy to manage and operate the entire data center infrastructure. With these products, VMware offers a complete platform that delivers the scalability, flexibility and cost benefits of virtualizing the underlying infrastructure across servers, networking and storage.
In concert with this private cloud capability, VMware also offers a seamless way to evolve the enterprise infrastructure to embrace the benefits of the public cloud with VMware Cloud Foundation. VMware Cloud Foundation gives the same operating environment for developers, letting them write the code once and deploy it anywhere they want, whether it's in the private cloud, in AWS, Azure, GCP or even across clouds. This simplicity is unique to VMware in ushering in the coming age of mass cloud adoption.
Stepping back on slide 10 and thinking about our existing software portfolio, we are incredibly excited about the opportunity to marry our products with the VMware platform to deliver more end-to-end capabilities to our enterprise customers. As we all know, enterprises need to manage a constantly changing portfolio of thousands of applications that reside on a wide variety of underlying infrastructures; from mainframe to client server, to hybrid and public cloud. And all of these applications are operating in different stages of their life cycle.
And we think together, Broadcom software assets for the distributed enterprise can seamlessly complement and augment VMware's multi-cloud offerings in the areas of operation management, value stream and DevOps management and security to address the entire application life cycle. Starting with Application Development; we bring significant value to help accelerate the development of applications through VMware's Tanzu products and our value stream management products like Rally and Clarity. Once developed, VMware's vSphere and Cloud Foundation can deploy these apps across a wide variety of environments.
We can secure these applications with the combined capabilities of Symantec's leading security portfolio along with Carbon Black's cloud native endpoint security products. Now given the hybrid working environment we're all in today, it's critical for enterprise to be able to enable seamless, high performance and ubiquitous access to these applications. And VMware has a leading set of products to enable this. Finally, to optimize and monitor these apps, Broadcom's existing portfolio of AI Ops and Observability, Enterprise Automation and continuous delivery can ensure these applications are running well.
Since these applications are constantly changing, it's exciting to be able to close the loop and feed any runtime operational issues right back into the application development step. So what's exciting is that when you put the two portfolios together, we're delivering an end-to-end solution that enables enterprises to support the three major types of application paradigms, including applications that run critical business functions that will remain in private cloud data centers, applications that are being ported to run in the public cloud and new generation applications that are written natively for one or several of the public cloud providers.
We do this across the entire application life cycle, and we can support any underlying IT infrastructure. That's unique to us, and we think this adds massive value to enterprise customers. Moving to the next slide; when I think about this deal, it reminds me of when as Avago, we acquired classic-Broadcom. This really transformed the time and modernized our semiconductor business. And ultimately, this is why we renamed ourselves Broadcom. As we come together with VMware, this represents the same level of transformation for our software business and we stand to benefit from VMware's unparalleled brand, trusted apps, a long-standing position as an iconic software platform within a robust vibrant ecosystem of hyperscalers, solutions and cloud providers and channel partners, among others.
We're excited to announce that following the closing of the transaction, Broadcom Software Group, will rebrand and operate as VMware, incorporating Broadcom's existing infrastructure and security software solutions into the VMware platform. Together, we will deliver the broadest range of platforms and tools to accelerate our combined customers' digital transformation. Turning to slide 12; together, Broadcom and VMware cover all major industry verticals and sell to all enterprises globally. And with this transaction, we are focused on serving all customers via a combination of our collective direct sales organizations as well as through our important channel partners.
When we look at the majority of our revenues, they are derived from the largest global multinationals, and they fit 6 key attributes. These customers are usually highly regulated and risk-averse with large and expanding IT budgets. They also have complex and heterogeneous environments that are built around hybrid and multi-cloud strategies. While many of these companies want to explore moving more workloads to the public cloud, they are held back by many factors, including the number of applications that they have, the unfavorable economics of the public cloud for certain workload types, the sensitive data they handle and/or regulation.
As a result, these companies will have to keep complex operating environments containing a private cloud, and over time to increasingly leverage the benefits of the public cloud as well. The amount of operational complexity created here is a challenge that we are uniquely qualified to partner with our customers to solve. In summary, together with VMware, we are best positioned to help the world's largest enterprises to embrace a hybrid and multi-cloud environment. As shown on slide 13, we have a proven track record of creating shareholder value by applying Broadcom's disciplined business model built on significant R&D investment and customer focus.
Applying this same model to VMware, we are targeting to increase VMware's standalone EBITDA of approximately $4.7 billion to approximately $8.5 billion in pro forma run rate EBITDA within three years of closing. Driving this are some material tailwinds to revenue growth and multiple knobs that we can turn on profitability. Some of these opportunities include focusing on research and development, to support efforts where we can uniquely deliver customer value, driving sales and marketing efficiency gains by focusing on our installed base and eliminating duplicative general and administrative functions.
We envision a long-term model for software, where we can grow our top line revenues at mid-single digits on a recurring basis, if not faster, while driving EBITDA margins in the mid-60s. Given our scale, this will allow us to reinvest very significant dollars back into the business, both via R&D as well as sales and marketing. Now on slide 14, let's talk about the deal structure. We are acquiring all of VMware's outstanding shares for approximately $61 billion in a 50% cash, 50% stock transaction.
Additionally, we are assuming VMware's $8 billion of net debt. VMware shareholders will have the option to elect between receiving $142.50 in cash or 0.252 shares of Broadcom common stock for each of their shares. We expect VMware shareholders to own approximately 12% of the pro forma company at close. The transaction will be financed with $32 billion in new fully committed debt financing from a consortium of banks.
We are committed to a strong balance sheet, and we remain steadfastly committed to our investment-grade rating. The acquisition is subject to regulatory approvals and other customary closing conditions, including approval of VMware shareholders. Michael Dell and Silver Lake have agreed to vote in favor of the transaction, and we expect the transaction to close in our fiscal 2023. The merger agreement does include a 40-day go-shop provision.
I'll hand it over to Kirsten, who is going to go through the financial results of the quarter and provide an update on our capital allocation policy.