Broadcom’s $69bn acquisition deal of VMware approved by China

The Chinese government has finally approved the $69bn (£55bn) merger between VMware and Broadcom. 

 

Broadcom is a leading chipmaking company that designs, develops and supplies semiconductor chips, also famous for developing software infrastructure solutions. 18 months ago, it set out on a journery to acquire VMware, a company specialising in cloud computing and developing virtualisation software.

 

The deal is set to become one of the biggest takeover deals in the tech sector. According to Broadcom’s president and CEO, merging the expertise of both firms will help build “the world’s leading infrastructure company”.  

 

Background 

The merger between Broadcom and VMware was delayed significantly due to concerns of the Chinese anti-competition authorities and the ongoing tensions between the US and China in the race for chipmaking and tech domination. 

 

These tensions date back to 2018 when the US imposed trade barriers and extra tariffs on Chinese imports. Last month, China retaliated by imposing new restrictions on their tech exports to the US.

 

Indeed, this is not the first time Broadcom has been caught up in the middle of the US-China relationship. In 2017, Broadcom’s takeover of their rival, Qualcomm, was blocked by US President Donald Trump over US national security concerns. 

 

The first bid for the merger was announced in May 2022 but Chinese authorities and VMware users had major concerns about the history of takeovers by Broadcom which has already acquired and sold off several businesses. Such concerns saw China’s regulatory authority, the State Administration for Market Regulation, keeping quiet and neither approving nor blocking the deal which was set to expire at the end of November 2023. 

 

However, Broadcom CEO, Hock Tan, has confirmed that this will not be the case with the current deal as the company plans to invest $2bn on an annual basis to help VMware develop its R&D as well as other departments. 

 

The Deal 

Following the APEC summit on the 14th of November 2023, and a meeting between presidents Joe Biden and Xi Jinping, the status of the deal became clear.

 

The leaders of the two countries agreed on tackling climate change together and strengthening military communications. This is a new starting point for the relations between the superpowers. Shortly after the summit, the merger received legal clearance from China, adding it to the list of countries approving the deal. 

 

However, this does not come without conditions: the Beijing anti-monopoly regulators have clarified that the approval depended on the merged entity not abusing its market position, allowing interoperability between VMware’s servers and other third-party providers. Additionally, the merged company must take ‘protective measures’ to protect the ‘sensitive information’ of Broadcom’s competitors. 

 

Paul Triolo, a China tech expert at Albright Stonebridge, explained that “Beijing could not let this deal become another casualty of US-China technology competition without incurring costs to its efforts to improve the business climate”.

By Adham Shaker