Broadcom, the chip manufacturer, is racing against time to finalize its $61 billion acquisition of VMware, the virtualization giant. The deal, which has already overcome regulatory hurdles in the U.S., UK, and European Union, now faces a potential roadblock with Chinese regulators.
Key Takeaway
Broadcom’s $61 billion acquisition of VMware faces a potential roadblock, as Chinese regulators review the deal. The looming deadline adds further pressure, with the expiration date set for November 26. The delay is seen as a political move amidst ongoing tensions between the U.S. and China. If the deal falls through, Broadcom will be required to pay a termination fee of
.5 billion. The acquisition of VMware would mark a significant shift for Broadcom, as it seeks to expand beyond its core business of chip manufacturing.
Chinese Approval Stands as the Last Barrier
The acquisition, announced by Broadcom in May 2022, has an expiration date of November 26. If the deal fails to close by then, Broadcom will be liable to pay a termination fee of $1.5 billion. While both companies express optimism that the deal will be completed before the deadline, the specific reason for the delay and their confidence remain undisclosed.
Although the statement issued by Broadcom does not explicitly mention China, it alludes to “one remaining obstacle.” Reports from The Financial Times indicate that Chinese regulators are reviewing the deal. With time running out, China could potentially stall the decision until the deadline passes, effectively terminating the agreement.
A Political Element Between U.S. and China
Analysts speculate that the hold-up in China’s approval stems from the ongoing political tensions between the U.S. and China. Ray Wang, the founder and principal analyst at Constellation Research, believes that China may be using the deal as leverage in response to U.S. AI chip export controls. Wang mentions that this move could be seen as a “tit for tat” retaliatory action.
The Biden administration recently implemented stricter controls on the export of Nvidia AI chips to China, reflecting the contentious nature of the technology sector between the two countries.
The Unusual Marriage of Broadcom and VMware
If the deal successfully concludes, Broadcom will add VMware, a prominent player in virtualization technology, to its portfolio. This acquisition is an atypical move for Broadcom, which predominantly operates as a chip manufacturer. In recent years, Broadcom has acquired legacy enterprise software companies, such as CA Technologies and Symantec’s security division.
The acquisition of VMware presents a unique challenge due to its distinct business model and position in the market. Unlike the acquired software companies, VMware remains a robust and innovative organization, making the integration with Broadcom a noteworthy endeavor.
