Tech war: China approves Broadcom-VMware merger with conditions, in sign of thaw with US

Broadcom’s US$61 billion takeover of software maker VMware won approval from Chinese regulators, albeit with a list of conditions it must fulfil.

Still, the nod from China completes the last hurdle for the companies, which said the agreement will close on Wednesday.

The combination of the US chip maker and cloud software company is one of the biggest technology mergers ever and had already received clearance from the EU, UK, South Korea and Japan. There is no legal impediment to closing in the US under merger regulations.

The companies had been waiting for approval from China, whose regulators have tanked other large mergers in recent years, and had delayed closing the deal.

The conditions imposed by China are tied to how the companies sell their products in the local market, including making sure VMWare’s server software is interoperable with Broadcom’s competitors’ hardware, the regulator said in a statement on Tuesday.

The VMware headquarters in Palo Alto, California. Photo: AP Photo

China said it will approve the deal if the conditions are met and that it has the right to supervise and inspect the companies’ adherence to the restrictions.

Approval of the deal could signal a thaw in relations between the US and China, following the Chinese president’s state visit, Pierre Ferragu, an analyst at New Street Research, said in a note to clients. But export restrictions “still seem a hot topic”, after Washington recently tightened such rules in an effort to block China’s access to high-performing semiconductors.

Broadcom slipped about 1.8 per cent to US$978.33, while VMware shares slid 4.6 per cent to US$143.20 at 10.16am in New York. Under the deal terms, shareholders could choose to receive either US$142.50 in cash or 0.252 shares of Broadcom stock for each VMware share.

Despite the stocks falling, analysts were broadly positive on the approval. The conditions “do not appear onerous” and “we see nothing that would prove odious to Broadcom”, analysts at Bernstein wrote.

Broadcom CEO Hock Tan aims to turn VMware into the centrepiece of his software operations after previously purchasing CA Technologies and Symantec’s corporate security business.

VMware, founded in 1998, pioneered so-called virtualisation programs, which consolidated applications and workloads on a smaller number of server computers. The innovation made it easier for servers to handle more than one program.

“The acquisition is transformational for Broadcom,” New Street’s Ferragu said. “VMware propels the company into a selective league in terms of go-to-market for enterprise IT software.”