The $61 billion acquisition deal between Broadcom (NASDAQ:AVGO) and VMware (NYSE:VMW), announced in May 2022, is facing potential delays due to regulatory issues in China. The deal, which includes Broadcom absorbing $8 billion of VMware's net debt, was expected to close by October 30th. According to a report by Adam Clark in the Financial Times on Thursday, approval from China's State Administration of Market Regulation (SAMR) may be delayed, necessitating further discussions with Chinese officials.
Broadcom, a prominent player in the Semiconductors & Semiconductor Equipment industry, with a market cap of $366.11B and a P/E ratio of 26.33, has been demonstrating high earnings quality, with free cash flow exceeding net income. The company has also been yielding a high return on invested capital and consistently increasing its earnings per share. As per InvestingPro, Broadcom has raised its dividend for 13 consecutive years, and 14 analysts have revised their earnings upwards for the upcoming period. This information can be found at InvestingPro Tips.
On the other hand, VMware, a significant player in the Software industry, with a market cap of $65.44B and a P/E ratio of 45.88, has shown high earnings quality, with free cash flow exceeding net income, and yields a high return on invested capital. However, there has been a declining trend in its earnings per share. InvestingPro data also shows an impressive gross profit margin for VMware. More details can be found at InvestingPro Tips.
This potential holdup comes amidst new U.S. restrictions on exports of advanced semiconductor technology to China. These developments have led to a significant widening of the deal spread and a 7.6% drop in VMware's stock price. Both Broadcom and VMware have not provided direct comments but previously expressed confidence in concluding the deal as planned.
Earlier this week, the merger received UK clearance and the U.S. HSR waiting period expired. The NYSE plans to delist VMware due to its sale to Broadcom and suspend trading on October 30th. An October 23rd deadline has been set for VMware shareholders to elect their merger consideration.
This situation echoes Intel (NASDAQ:INTC)'s decision earlier this year to abandon its $5.4 billion acquisition of Israel’s Tower Semiconductor (NASDAQ:TSEM) due to similar Chinese approval delays. Such delays are common when merged companies' annual revenue from China exceeds $117 million, triggering an antitrust review. As per InvestingPro, there are 21 additional tips for investors considering Broadcom and 18 for VMware, providing more comprehensive insights into these companies.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.