Fears China could trash Broadcom's VMware nuptials as revenge for sanctions

China may yet throw a spanner in the works of Broadcom's imminent takeover of virtualization supremo VMware as payback for the latest in line of export restrictions imposed on it by Washington.

Semiconductor giant Broadcom is all set to close its $69 billion buy of VMware on October 30 after passing some regulatory hurdles, including scrutiny by the EU and UK competition watchdogs. But reports that Beijing may refuse to give its approval have resurfaced after previously being dismissed.

China's watchdog, the State Administration for Market Regulation (SAMR), has not signed off on the impending transaction. According to the Financial Times, it is likely to delay approving it following the announcement of updated restrictions on the sale of advanced technology to the Middle Kingdom this week.

Similar reports emerged earlier this year, with suggestions that Beijing was deliberately holding off from giving approval to mergers involving US companies in retaliation for the existing sanctions and export restrictions that were already in place. And Broadcom generates billions in revenue from the Chinese market, enough for any merger it is involved with to trigger an antitrust review, as we noted at the time.

Intel's planned $5.4 billion takeover of Israeli chipmaker Tower Semiconductor fell through, for example, when that proposed merger was not given regulatory approval by SAMR within the allotted time frame for the deal to close.

However, Broadcom CEO Hock Tan dismissed any notion that China might block or otherwise derail the planned acquisition during Broadcom's Q3 earnings call in September, claiming the deal had won "foreign investment control clearance in all necessary jurisdictions."

According to the FT, however, South Korea's Fair Trade Commission has yet to approve the merger, although a decision from that agency is expected next week.

The report also claimed that approvals for mergers involving US companies now require "additional consultations" with China's Ministry of Foreign Affairs and the State Council, which is said to add to the political nature of the process. We asked both VMware and Broadcom if they are still confident that the deal will close on time.

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A VMware spokesperson told us: "We continue to expect the deal to close on October 30, 2023." Broadcom was not immediately available to comment.

The jury is still very much out on whether the impending acquisition will turn out to be a good move for Broadcom, VMware, its customers, or the industry in general, with VMware's cloud and virtualization platform forming a key part of the IT infrastructure for many enterprises.

VMware's leadership is sold on the deal being a win, as reported during the company's Explore conference in August. A $2 billion investment in VMware was also announced at the event, $1 billion of which will be in R&D.

However, there is persistent speculation about price hikes on VMware licenses to follow the merger, which Broadcom's Tan was forced to directly rebuff in a blog post.

There were also the inevitable rumors about layoffs following the deal's completion, with reports claiming that various VMware staff were told to expect a new contract from Broadcom, a short-term contract as part of a transition plan, or to be laid off.

Broadcom argued earlier this year that VMware's strategy was failing, and that it needed the merger in order for Broadcom to "rescue" it. ®