Beijing is weighing holding up U.S. chipmaker Broadcom Inc’s (AVGO.O) $69 billion purchase of cloud computing company VMware Inc (VMW.N), the Financial Times reported on Thursday, citing three sources familiar with the matter. The report said that the government may require Broadcom to hold further discussions with the Ministry of Foreign Affairs and the State Council before approving the transaction. Shares of VMWare dropped 7.5% in premarket trading on concerns China would delay the deal.
Founded in 2004, VMware is one of the world’s largest server hardware companies. Many of the world’s top technology, telecommunications, and media firms use the software company’s products. The acquisition of VMware is the latest in a series of significant forays into software by Broadcom Chief Executive Officer Hock Tan, who has built the chipmaker into one of the industry’s most extensive and most diversified players by buying companies that help it serve customers’ growing demand for data center products.
Broadcom, which makes chips for everything from iPhones to industrial equipment, is seeing some of its fastest growth from data centers–the massive server hubs that power cloud-computing services. VMWare, whose software manages such servers, will help Broadcom diversify its portfolio of products and boost profitability.
The acquisition is expected to close next year, pending regulatory approvals in the United States and Europe. Broadcom has already received legal merger clearance in Australia, Brazil, Canada, South Africa, and Taiwan, and foreign investment control clearance in all the necessary jurisdictions, the company said earlier this year.
Britain’s competition authority has provisionally cleared the purchase, saying it was unlikely to limit interoperability between rival I/O hardware and servers that use VMware software. The Competition and Markets Authority said it had not found evidence that the combination would significantly restrict competition in the supply of chips that connect servers to storage equipment and other components.
But the EU is still examining the deal, which has drawn criticism from European antitrust regulators concerned that it could reduce the choice of I/O equipment for large data centers. The European Commission has said it will only approve the deal if Broadcom offers remedies to its rivals to ensure the technology will remain available.
