Geopolitics Hold Up Broadcom-VMware Deal

China withholding approval of the acquisition is a sign of how the political tensions are reshaping the world into multipolar economic spheres of influence.

By Larry Walsh

Broadcom’s $61 billion acquisition of VMware was expected to close yesterday, but it has stalled due to the withholding of approval by Chinese regulators, leaving stakeholders, shareholders, and the extended partner communities of both companies uncertain.

The impasse highlights the increasing multipolarity of the global economic landscape — one characterized by economic centers and spheres of influence reshaped by geopolitical rivalries. The result? A new tone and pace for business operations.

Over a year ago, Broadcom, a chipmaker, announced its intentions to acquire VMware. Since that announcement, regulators worldwide have approved the deal, with the notable exception of China. Rather than issuing an outright rejection or providing guidance on how to modify the deal for approval, the regulators in Beijing have chosen not to take any action at all.

Analysts and observers speculate that Beijing’s inaction is a retaliatory measure against the United States’ escalating technology trade restrictions under the Trump and Biden administrations. These restrictions include limiting the transfer of advanced technologies and prohibiting technology investments in China, all in the name of national security.

Broadcom has publicly stated that it has met all the required standards for closing the acquisition. However, experts emphasize that bypassing China’s approval is not a viable option, as it could result in substantial fines and penalties, particularly given Broadcom’s significant manufacturing and supply-chain interests in China.

Despite these challenges, Broadcom remains optimistic that the deal will be finalized before the expiration of the merger agreement on Nov. 26.

For three decades, the United States and various Western nations have been working to integrate China into the global economy, driven by the belief that this integration would increase global security and prosperity. China’s track record has been less than stellar, though, with accusations of intellectual property theft, mandatory technology transfers, restrictions on money repatriation, and the sanctioning of cyberattacks on Western companies.

In response, the United States and other countries have begun tightening technology trade restrictions on China. Although China boasts a vast technology manufacturing sector, it can’t produce advanced semiconductors requiring sophisticated techniques and equipment.

Stalling acquisitions is one strategy that China has employed to push back against these restrictions. The Broadcom-VMware deal is not the first to be affected. In 2018, China’s failure to approve Qualcomm’s acquisition of NXP Semiconductors resulted in the deal not taking place. And this past August, Intel was forced to abandon its acquisition of Israeli chipmaker Tower Semiconductor because China didn’t approve it.

As highlighted in the Channelnomics Channel of the Future 2030 report, ongoing deglobalization trends and geopolitical tensions are expected to continue transforming the global economy. While these changes might not seem directly related to channel operations on the surface, it’s anticipated that they’ll significantly alter channel relationships and operations worldwide.

Again, experts predict that the Broadcom-VMware deal will be completed before the deadline despite the current uncertainty. While China may be using this deal to voice its dissatisfaction with restrictions imposed by Western nations, it also recognizes the importance of having companies like Broadcom and VMware continue their operations within its borders.

Larry Walsh is the CEO, chief analyst, and founder of Channelnomics. He’s an expert on the development and execution of channel programs, disruptive sales models, and growth strategies for companies worldwide. Follow him on Twitter at @lmwalsh_CN.

DISCLAIMER: Broadcom is a Channelnomics client, but the author does not have a financial interest in either Broadcom or VMware.

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