Broadcom still expects to acquire VMware after deal misses targeted closing date
Broadcom Inc. this morning reassured investors that it still expects to close its proposed acquisition of VMware Inc., which was set to close today but didn’t.
The transaction terms designate Nov. 26 as the deal’s completion deadline. If Broadcom doesn’t finalize the acquisition by then, it will have to pay a $1.5 billion termination fee. When it first announced its plans to buy VMware last May, the chipmaker stated that it was hoping to close the transaction by today, or about a month before the official deadline.
Recent reports suggest that the acquisition is facing delays because it’s still awaiting regulatory approval in China. Earlier this month, sources told the Financial Times that China’s State Administration of Market Regulation has not yet signed off on the transaction.
In a statement today, Broadcom said it expects the “acquisition of VMware (the ‘Transaction’) will close soon, but in any event prior to the expiration of their merger agreement.”
The chipmaker has already secured regulatory approval for the deal in more than a half-dozen jurisdictions, including the U.S. However, its path to obtaining the greenlight wasn’t without challenges. The proposed deal faced particularly strong scrutiny in the European Union and the U.K.
EU antitrust officials and their U.K. counterparts were worried the acquisition of VMware might give Broadcom an unfair edge in the market for FC HBAs, or Fibre Channel host bus adapters. Those are specialized chips used to connect servers with storage equipment in data centers. Broadcom is the industry’s largest supplier of FC HBAs.
Because VMware’s hypervisor is widely used in data centers, FC HBAs must be compatible with the software to work well. Regulators in the EU and U.K. were concerned that Broadcom could limit rival FC HBA suppliers’ ability to make their products compatible with VMware’s hypervisor. Such a move, they argued, could harm those suppliers’ ability to compete.
EU officials eventually cleared the deal after Broadcom made a series of antitrust commitments to address their concerns. The U.K.’s antitrust regulator, in turn, determined Broadcom would have no incentive to limit rival FC HBA products’ VMware compatibility. The regulator also raised a number of related concerns about the deal that were addressed as well.
Broadcom plans to pay for half of VMware’s shares in cash and buy the rest using stock. At the time of the deal’s announcement, the offer valued the virtualization giant at $61 billion excluding debt. Broadcom’s stock price has increased considerably since, which means the acquisition price is now higher as well.
Upon the deal’s completion, the chipmaker plans to merge VMware with its software business. That business largely comprises assets from CA Technologies Inc. and Symantec Corp.’s enterprise cybersecurity unit, which Broadcom acquired a few years ago for a combined $29.6 billion. The chipmaker expects that 49% of its revenue will come from software once VMware joins the fold.
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