Chinese regulators could delay the $61bn takeover of VMware by US chipmaker Broadcom. Despite some opposition, the deal has been approved by regulators around the world, but in the wake of tightening US sanctions on tech companies operating in China, officials in Beijing are reportedly considering whether to put the brakes on the blockbuster acquisition.
Broadcom announced its intention to purchase VMware last May but has faced investigations from regulators around the world following opposition from other tech companies and VMware customers, with many raising concerns they may be forced to purchase additional Broadcom products if the acquisition is completed.
After a series of concessions, including providing access to developer kits and training for competitors, the deal was given approval by nine regulators including the UK Competition Markets Authority and the European Union. While some regulators, including South Korea’s Fair Trade Commission and the US Federal Trade Commission (FTC) have yet to approve the purchase, announcements are expected imminently.
China says it is weighing up its position on the merger because the US government is toughening export controls around Chinese access to advanced semiconductors and other tech equipment. A report in the FT revealed that China’s State Administration of Market Regulation is likely waiting for input from the Ministry of Foreign Affairs, with insiders saying “their involvement adds to the political nature of the process”.
Broadcom caught in US-China trade war… again
This is the second time in five years that Broadcom has been caught between US and Chinese tensions. A previous attempt by the then Singapore-headquartered chipmaker to buy rival Qualcomm was blocked by Donald Trump on national security grounds.
Broadcom has since moved its headquarters to the US but President Joe Biden’s increasing restrictions on US-China tech deals appears to have put the company at the centre of the tensions once again. Chinese authorities are putting US companies operating in China under increasing scrutiny, including raiding the offices of some US-owned consultancies.
What isn’t clear is whether the deal between Broadcom and VMware can still go ahead even if China refuses approval. The company has declined to address this issue but with $33bn of revenue generated in China last year, Broadcom will have to take it into consideration. While VMware doesn’t break out its revenue in China, executives have previously described its position in the country as “robust”.
Any business generating at least $55m in China has to get approval from the State Administration of Market Regulation if they wish to merge with another company. Failing to do so could see both Broadcom and VMware excluded or fined if they continue with the merger without approval.
Despite the latest setback, Broadcom says it still expects to close the deal by the end of this financial year, pending final approval from the FTC.
After the EU gave approval for the merger in July, a Broadcom spokesperson said the company “looks forward to continuing to work constructively with regulators around the world”. They added: “Broadcom is confident that when regulators conclude their review, they too will see that the combination of Broadcom and VMware will enhance competition in the cloud and benefit enterprise customers by giving them more choice and control over where they locate their workloads.”
Read more: Broadcom’s $61bn VMware takeover gets UK CMA approval
