Broadcom-VMware merger held up as China delays $69bn deal

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US chipmaker Broadcom and cloud software company VMware have delayed the completion of their $69bn merger, which had been scheduled to close on Monday, as they await approval from China.

The companies said in a joint statement that they maintained their “expectation that Broadcom’s acquisition of VMware will close soon, but in any event prior to the expiration of their merger agreement”, which set a final deadline of November 26.

The Financial Times reported this month that Chinese regulators were considering holding up the deal, which was first announced in May 2022, after Washington toughened rules to block Chinese access to high-performance semiconductors.

Broadcom and VMware’s statement did not mention China directly but said they expected to “close [the] transaction promptly following satisfaction of [a] remaining condition”. China was not listed among the territories that have approved the deal, which include the EU, Japan, South Korea and the UK.

People close to the situation in China have said geopolitical friction between Washington and Beijing hung over the deal’s approval.

The companies said that there was “no legal impediment to closing under US merger regulations”.

The statement indicates that US antitrust authorities had not lodged objections before the deadline expired for intervention under the Hart-Scott-Rodino Act, which requires large deals to be notified to the US Federal Trade Commission and Department of Justice.

Ahead of Monday’s deadline, both companies had proceeded as if closing was imminent.

Mark Kelly, chief executive of MKP Advisors, an advisory firm, said Monday’s statement was the “first public admission by the companies that they cannot close as planned”, despite the FT’s initial report that a lack of approval from China could delay it.

“Never before has there been such uncertainty over the fate of such a large acquisition so close to a supposed deadline for it to be closing,” Kelly said.

“I’ve never seen anything like this,” said one hedge fund investor who owns VMware shares.    

The delay will leave investors hoping that a thaw in US-China relations could open a path to approval. President Xi Jinping is expected to meet his counterpart Joe Biden in San Francisco next month for the Asia-Pacific Economic Cooperation summit. Prior meetings, such as one held in Bali last year, have helped stabilise relations. 

China’s State Administration for Market Regulation did not immediately respond to requests for comment, outside normal business hours.

Moving forward without China’s approval could be highly damaging for Broadcom. The San Jose-headquartered group brings in about a third of its revenue from shipments to China and lawyers say the group could face a large fine for closing without China’s sign-off. 

If Broadcom’s merger with VMware is eventually scuppered by Beijing, it would mark the second time in five years that the technology group has seen its ambitions curtailed by US-China tensions.

In 2018, then-US president Donald Trump blocked Broadcom’s $142bn bid for chipmaker Qualcomm, citing national security concerns about a US semiconductor champion being bought by what was then a Singapore-headquartered company. Broadcom subsequently relocated its headquarters to the US.

Additional reporting by Ding Wenjie in Beijing