Broadcom’s VMware Purchase On Hold as China Stands in the Way

China has put a hitch in Broadcom’s giddyup to close the long-pending VMware purchase.

Slated to close Monday, the fate of the $61 billion deal remains uncertain as Broadcom seeks to secure the last regulatory approval standing in its way, this one from China.

While Broadcom and VMware did not name China as the holdup for its plans, the country’s State Administration of Market Regulation is the only antitrust approval left in the pipeline.

“The parties have received legal merger clearance in Australia, Brazil, Canada, the European Union, Israel, Japan, South Africa, South Korea, Taiwan, the United Kingdom, and foreign investment control clearance in all necessary jurisdictions,” the companies said in a joint press release issued early on Monday. “There is no legal impediment to closing under U.S. merger regulations.”

Broadcom and VMware now say the acquisition “will close soon,” according to the press release. Both companies said they still expect the deal to conclude before Nov. 26, the date their merger agreement expires.

If that doesn’t happen and the VMware purchase is terminated, Broadcom could owe $1.5 billion in fees.

What’s Delaying Broadcom’s VMware Purchase

Everything seemed on track for chipmaker Broadcom to close its acquisition of cloud software maker VMware on Oct. 30, as expected — until a couple of weeks ago. That’s when U.S. President Joe Biden imposed strict export controls on advanced computer chips and the equipment to make them, making it more difficult for China to get its hands on those items. After that, reports soon started circulating that China could delay its approval of Broadcom’s VMware purchase, largely as a retaliation for Biden’s move.

“The Broadcom-VMware deal is apparently caught in the crossfire of trade wars and geopolitical tensions between Beijing and Washington,” wrote longtime channel analyst Larry Walsh on LinkedIn on Monday. “The delay will leave partners and customers in limbo until China approves the deal.”

It’s a significant development. Broadcom’s VMware purchase marks the second-largest M&A transaction of 2022 and, despite its many stops and starts, looked on track to close in time. Should China’s delays result in an end to the effort, that would mark the second time in five  years Broadcom would have been hampered by U.S.-China tensions. It tried to buy Qualcomm in 2018 but then-President Donald Trump blocked the bid over national security concerns.

Meantime, Broadcom is not in a good position to try to close without China’s blessing. About one-third of the chipmaker’s revenue comes from China.

How VMware Employees Are Reacting

Along the way, VMware employees posting on TheLayoff.com are expressing frustration and anger. Many continue to wait to learn whether they will have jobs after Broadcom’s VMware purchase. Others already have been let go. Still others say that even though they still have their roles, their motivation has evaporated.

“Sit back and enjoy the next few weeks/months of being well paid to do nothing,” one wrote in response to another still waiting for an offer letter.

How Investors Are Reacting

Shares of VMware were trending down in pre-market trading on Monday. They had fallen nearly 3% by time of publication, to $142.20.

That’s eerily close to the amount of cash VMware shareholders will receive if the Broadcom deal goes through. In the recent merger-consideration election, 96% of VMware shareholders opted for stock consideration. That means a little more than half of VMware’s shares will convert to Broadcom stock and the rest will be exchanged for $142.50 in cash per share.

Broadcom shares, however, were trading slightly higher in pre-market activity, reaching $838.36.