Broadcom announced that its $61bn deal to buy software maker VMware will “close soon” and before the expiration of their merger agreement – as China stands in its way as the last major hurdle.
The deal has received legal clearance to combine Australia, Brazil, Canada, the EU, Israel, Japan, South Africa, South Korea, Taiwan and the UK, the company said in a statement on Monday (30 October).
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The two companies announced their “expectation that Broadcom’s acquisition of VMware will close soon, but in any event prior to the expiration of their merger agreement”.
The expiration date is set for November 26.
The announcement follows concerns from investors that regulators in China may delay the Broadcom/VMware deal. In a Financial Times report, the publication said antitrust regulators in China could take longer to approve the deal due to the restrictions imposed by the US on chip exports.
Although the two companies did not mention China directly, the country was not listed among the territories that had approved the deal.
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By GlobalDataShareholders can choose to receive either $142.50 or 0.2520 shares of Broadcom stock for each VMware share, according to the deal terms.
Founded in 1998, VMware agreed to the record-breaking Broadcom merger in May 2022.
The $61bn deal is the biggest planned acquisition by any chipmaker, followed by Advanced Micro Devices $31.3bn buyout of Xilinx.
Hock Tan, Broadcom CEO, has said that he wants to turn VMware into the main go-to for the company’s software operations, after previously purchasing both CA technologies and Symantec Corp’s corporate security business.
Steve Schuchart, principal analyst at research company GlobalData, wrote on Verdict, that Broadcom folding its entire software portfolio under the VMware banner “isn’t as reassuring” as it thinks.
“It will introduce distractions for VMware executives and culture integration issues bringing in CA and Symantec,” Schuchart said.
VMware is known for pioneering virtualisation programs, allowing for a smaller number of computer servers to run applications. This made it easier for servers to handle multiple applications and workloads at once.
“VMware is central to many enterprises today,” Schuchart said, “the company perfected PC machine virtualisation and revolutionised enterprise data centres.”
“Add in its other products, including storage software and networking, and the impact of the company is enormous,” he added.
However, with the rise of the cloud and containers, VMware’s core customer base has been put under threat. There has also long been a concern about the licensing costs for VMware, which are often done by a per-CPU basis.
“VMware is known as a pricey solution, but there has only been minimal competition to its core virtual machine business,” Schuchart said.
Containers only contain the parts of the OS needed to run the entire application, making the application itself much more efficient.
According to Schuchart, this is putting pressure on VMware – as the rise of containers that are cheap or free means that clients are beginning to consider looking elsewhere for less expensive solutions.
