Title: China Considers Halting Broadcom’s $69bn Acquisition of VMware Amidst US-China Tensions
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In a move that could further escalate tensions between the United States and China, Beijing is reportedly contemplating putting a hold on US chipmaker Broadcom’s $69 billion acquisition of cloud software company VMware. This development comes just after Washington unveiled stricter rules aimed at restricting Chinese access to high-performance semiconductors.
According to sources familiar with the matter, China’s State Administration of Market Regulation has yet to approve the deal announced in May 2022 and is likely to delay its endorsement, especially following the recent chip control measures imposed by the US. The approval process for merger and acquisition deals involving US companies now requires additional consultations with the Ministry of Foreign Affairs and the State Council, adding a more political dimension to the process.
As news of the potential setback spread, VMware’s shares dropped approximately 9% to $150.31 in New York, while Broadcom saw a decline of around 2%. The uncertainties surrounding the deal have caused some investors to change their perception dramatically. One large hedge fund investor stated, “On Friday last week, this was trading with a greater than 90% probability of success, and now it is trading like a coin flip.”
Thus far, China’s State Administration of Market Regulation, the Ministry of Foreign Affairs, and the State Council have not responded to requests for comment regarding the situation. Meanwhile, Broadcom expressed confidence that there are no legal obstacles for the deal to proceed in the US. The company stated that it has received regulatory approvals in nine jurisdictions and is making progress with filings around the world, anticipating the transaction to close by the end of this month. VMware echoed this sentiment, saying they also expect the deal to close on October 30, 2023.
However, South Korea’s Fair Trade Commission is another regulator that has yet to approve the deal, with a decision likely to be announced next week following a review held on Wednesday.
The need for Chinese approval places Broadcom’s merger plans at the center of escalating tensions between Washington and Beijing. Earlier this year, Chinese state security officials raided the offices of US consultancies Bain & Company and Mintz Group, while also enacting bans on certain chip purchases from US semiconductor maker Micron Technology.
If Beijing ultimately scuttles the Broadcom-VMware merger, it would not be the first time the company faced deal obstruction due to US-China tensions. In 2018, then-US President Donald Trump blocked Broadcom’s $142 billion bid for chipmaker Qualcomm over concerns about US national security.
Chinese officials have been closely scrutinizing any transactions involving US chip groups, which saw semiconductor giant Intel calling off its $5.4 billion acquisition of Israeli chipmaker Tower Semiconductor after failing to secure regulatory approval in China before their self-imposed deadline.
Experts suggest that China’s antitrust regulator rarely blocks mergers outright, often opting to prolong the review process until the parties involved grow impatient and abandon the deal. In the case of Broadcom and VMware, the acquisition would require clearance from China’s State Administration of Market Regulation for anti-monopoly approval, as their combined revenue in China surpasses the threshold of Rmb400 million ($55 million).
Broadcom, headquartered in San Jose, has yet to address whether the acquisition would require the sign-off of antitrust authorities in China. However, it is worth noting that a significant portion of Broadcom’s revenue, approximately one-third of its $33 billion, comes from shipments to China. VMware, on the other hand, does not disclose its revenue from China, but company executives have dubbed its business in the country as “robust.”
The increasing complexities surrounding Broadcom’s acquisition of VMware highlight the ongoing tensions between the world’s two largest economies, as they vie for dominance in the global semiconductor industry.