Broadcom, VMware insist merger to 'close soon' as China plays hard to get

Regulatory red dragon keeping silent with a day left until deadline

VMware and Broadcom are trying to quell investor fears that China's competition regulator could kill the proposed $61 billion merger, issuing a joint statement to say the transaction "will close soon".

Uncertainty surrounds Broadcom's takeover of cloud and virtualization outfit VMware. The transaction was expected to close today, but China's State Administration for Market Regulation (SAMR) has so far not approved the deal.

In a statement issued by both parties, the companies point out they've already received legal merger clearance in various territories, including Australia, Brazil, Canada, the European Union, Israel, Japan, South Africa, South Korea, Taiwan, and the UK.

The pair also insisted they had foreign investment control clearance "in all necessary jurisdictions," and "there is no legal impediment to closing under US merger regulations."

The latter appears to be a reference to Broadcom's earlier claim that pre-merger waiting periods under the Hart-Scott-Rodino Act have now expired, and as no objections to its acquisition of VMware have yet been raised by the Federal Trade Commission (FTC),there is nothing in US law to prevent the sale going ahead.

The joint corporate statement make no mention of China, yet because Broadcom generates billions in revenue from the country, this is enough for any merger it is involved in to trigger an antitrust review by the Chinese authorities.

Earlier this month, the Financial Times claimed that SAMR is likely to delay giving approval, and mergers involving US companies now require "additional consultations" with China's Ministry of Foreign Affairs and the State Council. This is widely believed to be in retaliation for US sanctions and export restrictions imposed against China.

China was already blamed for the failure of Intel's planned $5.4 billion takeover of Israeli chipmaker Tower Semiconductor, which was not given regulatory approval by SAMR within the allotted time frame for the sale to proceed.

Broadcom CEO Hock Tan has often indicated that he expects and prefers the purchase of VMware to be done and dusted by October 31, which is the last day of Broadcom's financial year. He also previously dismissed suggestions that China might block the merger.

VMware previously extended the deadline for the completion of its acquisition by Broadcom in a filing which said either company may further extend the date to November 26 by providing written notice to the other.

The statement issued by VMware and Broadcom today also announced the results of the elections made by VMware stockholders as to whether they chose to receive a cash sum or Broadcom common stock in exchange for each share of VMware common stock they hold when the transaction closes. It seems 96 percent voted for Broadcom stock.

However, according to investment news outlet Barron's, investors are betting that the stock election period for VMware investors, which ended last week, will be extended if the deal gets delayed past October 30.

We asked Broadcom and VMware for clarification on whether they had received any indication from China's SAMR that it would approve the merger, and if not, whether they intend to proceed regardless or extend the deadline. We will update if we get an answer. ®

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