VMware stock dips close to 10% as China threatens the company’s acquisition by Broadcom

Software maker VMware's stock slipped close to 10% on Thursday, amplifying concerns among investors regarding the future of its acquisition by semiconductor manufacturer Broadcom.

Shares of VMware dipped by 9.5% to close at $150.31 in trading on Thursday, compounding the losses experienced earlier in the week, spurred by mounting anxieties that the ongoing trade tensions between the U.S. and China could impede the completion of the deal.

In May 2022, Broadcom unveiled a purchase agreement to acquire VMware for $61 billion, involving a combination of cash and stock, along with the assumption of $8 billion in net VMware debt. The deal is scheduled to close on October 30.

However, there are indications that the China State Administration of Market Regulation is likely to delay its approval for the Broadcom-VMware deal, according to a recent report by the Financial Times citing people familiar with the matter.

VMware acquisition: Companies expect to close deal on schedule, despite delay

The prospect of a delay stems from the United States' recent tightening of restrictions on the export of advanced semiconductor technology to China, originally unveiled by U.S. President Joe Biden a year ago. The move, announced on October 18, sent jitters through the market, causing multiple tech firms’ stock to fall — market leader Nvidia’s stock has lost close to 7% over the past 5 days. 

As per a Barron’s report, the new rules impose controls on an expanded range of semiconductor equipment types, fortifying the measures to prevent U.S. companies from supporting advanced Chinese semiconductor manufacturing. Licensing requirements regarding chip manufacturing equipment have been broadened to encompass 21 more countries, extending beyond China and Macau, for which the United States maintains an arms embargo.

According to the Financial Times, both VMware and Broadcom said they are still expected to stick to the original schedule to finalise the deal.

In documents filed this week related to the acquisition, Broadcom and VMware acknowledged that the deal's progress could be affected by the ability to secure regulatory approvals on time and on the expected terms.

Regulatory hurdles: Delays in China approval lead Intel dropping $5.4 billion deal 

Earlier this year, California-based tech giant Intel abandoned its intended $5.4 billion purchase of Israel's Tower Semiconductor due to delays in obtaining Chinese authorization. A merger triggers an antitrust examination in China in cases where a merger involves two companies that collectively generate more than $117 million in annual revenue from the country.

At the time of writing on Friday, VMware shares were trading at $152.00, up close to $2 and 1.12% in pre-market trading, as per MarketWatch data. The company’s stock has surged 22.5% year-to-date.

Broadcom shares were mostly flat in pre-market trading on Friday, up 0.23% at a price of $869.66. The company’s stock has lost close to 2% over the past five days but gained 55% year-to-date.