Broadcom announced its intention to buy VMware for $61 billion in May 2022. After clearing a number of regulatory hurdles including the U.S., UK and European Union, it announced In August that the deal would close today, but this morning the company indicated that there was one more obstacle with reports indicating that Chinese regulators are holding up the deal.
One complication here is that the deal has an expiration date of November 26, at which time the deal would expire, and Broadcom would have to pay a $1.5 billion termination fee under the terms of the agreement.
The company seems confident that it can do that. “Broadcom Inc. and VMware, Inc. today announced their expectation that Broadcom’s acquisition of VMware will close soon, but in any event prior to the expiration of their merger agreement,” the company said in a statement.
That doesn’t tell us much about the reason for the hold up or why they are confident, and the company would not comment further, pointing to the press release when asked for clarification by TechCrunch.
While the statement didn’t mention China directly, it stated that there was ‘one remaining obstacle.’ The Financial Times reported that China is reviewing the deal. With so little time left before the termination deadline, they could kill the deal simply by slow-walking the decision until the deadline passes.
Ray Wang, founder and principal analyst at Constellation Research, says there is definitely a political element here between the U.S. and China. “The kicker is China’s approval. They are holding it up as a tit for tat [for U.S. AI chip export controls],” Wang told TechCrunch. Earlier this month the Biden administration announced new controls on the export of Nvidia AI chips to China, as a recent example.
If the deal were to go through VMware, the virtualization giant, would become part of Broadcom, a chip manufacturer. It feels like a fairly unusual marriage, even in combination with some other legacy software companies Broadcom acquired in recent years.
As we wrote at the time of the deal announcement:
It spent over $18 billion in 2018 to buy legacy enterprise software company CA Technologies and another $11 billion a year later for Symantec’s legacy security business. Those are very different animals from VMware, which is still a viable company and not some dinosaur with a portfolio of licensing deals on the books that a company like Broadcom can take advantage of.
For now, the deal hinges on that final approval, and even though the company sounds confident it will close, it definitely cutting it very close.