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Beijing is considering halting US chipmaker Broadcom’s $69 billion takeover of cloud software company VMware – a move that would come shortly after Washington tightens rules to block China’s access to high-performance semiconductors.
China’s State Administration for Market Regulation has not signed off on the mega deal announced in May 2022, and is likely to delay approval of the deal, especially in the wake of the unveiling of tougher chip controls in Washington on Tuesday, three people familiar with the matter said.
China’s M&A approvals for US companies now require additional consultations with the Foreign Ministry and the State Council, two of the people said.
“Their participation adds to the political nature of the process,” one person said.
VMware shares closed down about 9 percent at $150.31 in New York on Thursday. Broadcom stock fell about 2 percent.
“On Friday of last week, this stock was trading with a probability of success of more than 90 percent, and now it is trading like a flip of a coin,” one senior hedge fund investor said.
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 is no legal impediment to completing the deal in the United States, while it has received regulatory approvals in nine jurisdictions and is making progress with filings around the world. The group said it expects to close the deal in its financial year, which ends this month. “We continue to expect the transaction to close on October 30, 2023,” VMware said.
South Korea’s Fair Trade Commission is another regulator that has yet to approve the deal. An FTC spokesperson said the review was conducted on Wednesday, and a decision will likely be issued next week.
The need to go through the China deal review process puts the semiconductor group in the middle of growing tensions between Washington and Beijing.
Chinese state security officials raided the offices of US consulting firms such as Bain & Company and Mintz Group this year. The authorities also banned the purchase of some chips from the US semiconductor company Micron Technology.
If Beijing blocks Broadcom’s merger with VMware, it would be the second time in five years that the technology group has seen its dealmaking ambitions scaled back due to US-China tensions.
In 2018, then US President Donald Trump blocked a $142 billion bid by Broadcom for chipmaker Qualcomm, citing national security concerns about the purchase of a leading US semiconductor company by a then-Singapore-based company.
Broadcom then moved its headquarters to the United States.
Chinese officials are closely monitoring any deal involving US chip sets. Semiconductor giant Intel in August called off its $5.4 billion acquisition of Israeli chipmaker Tower Semiconductor, after failing to gain regulatory approval in China before a self-imposed deadline to close the deal.
“China’s antitrust regulator rarely formally blocks mergers, especially if other major jurisdictions have already approved them,” said a Chinese antitrust expert who requested to remain anonymous.
“If the authorities do not want to approve the deal, they prefer to repeatedly extend the review process until both parties lose patience and give up.”
Broadcom, based in San Jose, has repeatedly declined to discuss whether its purchase of VMware would need approval from China’s antitrust authorities. However, deals between large multinational companies in which participants generate revenues in China of more than RMB400 million ($55 million) must be submitted to the State Administration for Market Regulation to obtain antitrust 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 does not report revenue in China, but executives said its business in the country is “strong.”
Additional reporting by Tim Bradshaw and Arash Masoudi in London and Nian Liu in Beijing
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