When Broadcom CEO Hock Tan met with Donald Trump in early November 2017, the two immediately struck a deal. The meeting seemed a win-win for the two men, reports the Financial Times. Tan’s announcement that he was moving the Singapore-based chipmaker to its original headquarters was a big endorsement of Trump’s America First campaign. It was also a nod to the American Dream.
Tan described how he arrived in America as a poor “skinny 18-year-old kid” on an MIT scholarship. Now he wanted to “give back”. However, in a few days, the bonhomie was shattered. Tan’s account failed to mention that “he had a grand plan up his sleeve.” When, four days later, he launched an audacious $130 billion hostile bid for US chip company Qualcomm, Trump’s fury at being taken for a mug was palpable. Trump played the national security card to block the deal.
The Arc Consolidator
Five years later, the chip industry’s “ultimate consolidator” is back with another giant deal that he can see as partial consolation for this murderous debacle. In a bid to expand Broadcom’s offering, Reuters says, Tan is paying $61 billion for VMware, a cloud software company chaired and partly owned by Michael Dell (founder of the eponymous IT company). Given the wider carnage in the tech sector, the deal – valuing VMware at a 50% premium to its stock price – could be construed as risky. But when it comes to actually winning the case, Tan seems to have learned his lesson. In 2017 he was described by a viewer as too “arrogant” – the Broadcom team thought Qualcomm would be in the bag because the chairman liked the boss. This time he was much more cautious, says Bloomberg. After long “covertly watching” the software house, “Broadcom crunched the numbers, explored VMware’s products, and ran scenarios for about a year before making an approach.” It may also help that Tan’s relationship with Dell goes way back.
From the start, Tan, now 70, owes his success to “his willingness to seize opportunities”, specifies the FT. Born into a working-class Chinese Malaysian family, he grew up in Penang, one of the country’s economic powerhouses. A talented schoolboy, his big breakthrough came in 1971 when he won a scholarship to MIT to study mechanical engineering, reports The Edge Weekly (Malaysia). His early career is itinerant. Returning to Malaysia, Tan held senior positions at Hume Industries and Pacven Investments in the 1980s, before returning to America, where he obtained US citizenship and joined, in quick order, PC maker Commodore. , PepsiCo and General Motors.
Facing a backlash
When the tech boom started in 1999, Tan was in the right place at the right time. While running two esoteric electronics companies – Integrated Circuit Systems and Integrated Device Technology – “he perfected the art of acquiring companies”, gaining a reputation as a ruthless cost cutter. That put him on the radar of Silver Lake Partners, Dell’s investment firm, which named him head of chipmaker Avago Technologies because it “bolstered” him to get listed. In 2015, Avago acquired Broadcom for $37 billion, changing its name to reflect that trophy acquisition. A series of other acquisitions followed.
In 2017, Tan rose to prominence when he was named America’s highest-earning CEO, reflecting the fact that Avago/Broadcom shares had gained 1,600% since listing in 2009, thanks to consolidations shrewdness of its leader. The downside, according to Reuters, was a growing “perception” among target companies and analysts that Broadcom puts profits “above innovation.” Tan, now a recognized philanthropist, has always bristled with the accusation. But it’s currently fueling a backlash against his big VMware contract. He might think that at least this time he won’t have to tangle with the mercurial Trump.
What to buy as the tech stock bull market crashes
Is there still time to get some good deals on growth stocks?