China Holds Up Broadcom-VMware Deal Over U.S. Chip Restrictions: Report
The $61 billion deal for VMware has cleared the toughest market regulators in the world, with the U.S. Federal Trade Commission opting to let its investigation expire and the European Commission squeezing out conditions, but China may stop the deal entirely, three sources tell the Financial Times.
Broadcom’s self-imposed deadline for closing its $61 billion deal for VMware is 11 days away, and it is in peril with Chinese government officials, according to reports.
The move hit VMware’s stock price, with shares falling 5 percent in Thursday morning trading. However, with trading reaching $157.81 the price is still well above the $142.50 premium that Broadcom has offered to buy VMware shares from owners.
Beijing is threatening to block the merger, even after it has cleared regulators around the world, in retaliation for new U.S. trade rules that prevent China from receiving advanced chips from Nvidia and Micron, three people told the Financial Times.
The U.S. this week announced tougher measures to limit China’s access to high-end chipsets that could fuel breakthroughs in AI and sophisticated technology for its military. The U.S. restrictions hit China, Russia and Iran and blacklisted a Chinese chip designer.
Prior to the Financial Times story, Forrester principal analyst Tracy Woo told CRN recently that it was unlikely China would follow through on its threats to block the deal.
“China has been slowing the process down, but ultimately I don’t believe they will block the deal,” Woo told CRN via email. “This is a flex from China marking their presence on this major deal.”
Broadcom announced its intention to buy VMware in May 2022, for a 50-50 stock and cash deal worth $61 billion. Since then, Broadcom has overcome a lengthy deal investigation by the European Commission, survived a second request investigation by the U.S. Federal Trade Commission and a similar deep-dive examination by the U.K.’s Competition and Markets Authority.
While both European regulators explained how the deal may hurt competition among Broadcom’s rival chipmakers, it was allowed to proceed after the European Commission won numerous restrictions from Broadcom.
Among them, Broadcom has been ordered to create a fast-track dispute resolution mechanism with an independent judge that will oversee compliance with European Commission restrictions for a period of 10 years. Broadcom also is still operating under a seven-year consent decree in the European Union after it was found to have carried out illegal sales practices around the world. Under that agreement, which Broadcom struck to avoid prosecution for its market behavior, the chipmaker must open its books to European Union regulators.
Chinese officials have not spoken publicly about the deal.
However, according to the Financial Times, “Two of the people said China’s merger and acquisition approvals for US companies now required additional consultations with the Ministry of Foreign Affairs and the State Council.”
One of the people said “their involvement adds to the political nature of the process.”
Broadcom said in a statement that the deal was making progress with regulators and it expected it to close Oct. 30.