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Beijing is weighing holding up US chipmaker Broadcom’s $69bn acquisition of cloud software company VMware — a move that would come soon after Washington toughened rules to block Chinese access to high-performance semiconductors.
China’s State Administration of Market Regulation has not signed off on the blockbuster deal announced in May 2022 and is likely to delay approving the transaction, especially in the wake of Washington’s tougher chip controls unveiled on Tuesday, said three people familiar with the matter.
Two of the people said China’s merger and acquisition approvals for US companies now required additional consultations with the Ministry of Foreign Affairs and the State Council.
“Their involvement adds to the political nature of the process,” one of the people said.
The State Administration of Market Regulation, the Ministry of Foreign Affairs and the State Council did not respond to requests for comment.
Broadcom said it had received regulatory approvals in nine jurisdictions and was making progress with filings around the world. The group said it expected the transaction to close in its fiscal 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 one other regulator yet to approve the deal. An FTC spokesperson said a review was held on Wednesday, and a decision was likely to come next week.
The need to go through China’s deal review process puts the semiconductor group in the middle of rising tensions between Washington and Beijing.
Chinese state security officials raided the offices of US consultancies such as Bain & Company and Mintz Group this year. Authorities have also banned some purchases of chips from US semiconductor maker Micron Technology.
If Broadcom’s merger with VMware is scuppered by Beijing, it would mark the second time in five years that the technology group has seen its dealmaking ambitions curtailed by US-China tensions.
In 2018, then-US president Donald Trump blocked Broadcom’s $142bn bid for chipmaker Qualcomm, citing national security concerns about a US semiconductor champion being bought by what was then a Singapore-headquartered company.
Broadcom subsequently relocated its headquarters to the US.
Chinese officials have been closely scrutinising any transaction involving US chip groups. Semiconductor giant Intel in August called off its $5.4bn acquisition of Israeli chipmaker Tower Semiconductor, after failing to secure regulatory approval in China ahead of a self-imposed deadline for closing the transaction.
“China’s antitrust regulator rarely formally blocks mergers, especially if other major jurisdictions have already approved it,” said a Chinese antitrust expert who asked not to be named.
“If authorities do not want to approve a transaction, they prefer to extend the review process repeatedly until the parties lose patience and give up.”
San Jose-based Broadcom has repeatedly declined to address whether its purchase of VMware would need the sign-off of antitrust authorities in China. However, deals between large multinationals in which the two participants generate revenue in China of more than Rmb400mn ($55mn) must be filed with the State Administration of Market Regulation for anti-monopoly approval.
In Broadcom’s most recent financial year, about a third of the company’s $33bn in revenue came from shipments to China. VMware does not break out its China revenue, but executives have said its business in the country is “robust”.
Additional reporting by Tim Bradshaw in London and Nian Liu in Beijing
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