Unlock Editor’s Digest for free
Roula Khalaf, editor of the FT, picks her favorite stories in this weekly newsletter.
Beijing is considering blocking U.S. chipmaker Broadcom’s $69 billion takeover of cloud software company VMware, a move that would come shortly after Washington tightened rules to block Chinese access to high-performance semiconductors .
China’s state market regulator has not signed the blockbuster deal announced in May 2022 and is likely to delay approval of the transaction, particularly in the wake of tighter chip controls in Washington announced on Tuesday, three people familiar with the matter said.
Two of the people said China’s approvals of mergers and acquisitions for U.S. companies now require additional consultations with the Foreign Ministry and the State Council.
“Their involvement adds to the political nature of the process,” one of the people said.
Shares of VMware closed about 9 percent lower at $150.31 in New York on Thursday. Broadcom lost about 2 percent.
“On Friday last week, this trade had a probability of over 90 percent success and now it’s going like a coin toss,” said a major hedge fund investor.
The State Administration for Market Regulation, the Ministry of Foreign Affairs and the State Council did not respond to requests for comment.
Broadcom said in a statement that there was no legal impediment to completing the deal in the U.S., although the company has received regulatory approvals in nine jurisdictions and is making progress with filings around the world. The group said it expects to complete the transaction in its financial year ending this month. VMware said: “We continue to expect the deal to close on October 30, 2023.”
South Korea’s Fair Trade Commission is another regulator that has yet to approve the deal. An FTC spokesman said a review took place on Wednesday and a decision would likely be made next week.
The need to go through China’s deal review process puts the semiconductor company in the middle of rising tensions between Washington and Beijing.
Chinese state security officials this year raided the offices of U.S. consulting firms including Bain & Company and Mintz Group. Authorities have also banned some purchases of chips from US semiconductor maker Micron Technology.
If Broadcom’s merger with Beijing’s VMware falls through, it would be the second time in five years that the tech giant’s business ambitions have been constrained by tensions between the US and China.
In 2018, then-US President Donald Trump blocked Broadcom’s $142 billion bid for chipmaker Qualcomm, citing national security concerns over a then-Singapore-based company’s takeover of a US semiconductor leader.
Broadcom then moved its headquarters to the USA.
Chinese officials have scrutinized every transaction involving U.S. chip companies. Semiconductor giant Intel called off its $5.4 billion takeover of Israeli chipmaker Tower Semiconductor in August after failing to secure regulatory approval in China before a self-imposed deadline to complete the deal.
“China’s antitrust regulator rarely formally blocks mergers, especially when other major jurisdictions have already approved them,” said a Chinese antitrust expert who declined to be named.
“When authorities do not want to approve a transaction, they prefer to drag out the review process again and again until the parties lose patience and give up.”
San Jose-based Broadcom has repeatedly declined to address the question of whether its purchase of VMware would require approval from antitrust regulators in China. However, deals between large multinational companies where the two participants have sales of more than RMB 400 million (US$55 million) in China must be submitted to the state market regulator for anti-monopoly approval.
In Broadcom’s most recent fiscal year, about a third of the company’s $33 billion in revenue came from shipments to China. VMware doesn’t disclose its China sales, but executives said business in the country is “robust.”
Additional reporting by Tim Bradshaw and Arash Massoudi in London and Nian Liu in Beijing
Source : www.ft.com