The implied odds of VMware’s takeover closing have reportedly dropped to as low as 50% following a possible setback in China.
According to financial news site Barron’s, the value of VMware’s shares show investors are now hedging their bets on its Broadcom union being consummated.
Having announced the $61bn deal in May 2022, Broadcom has repeatedly trumpeted 30 October as the expected closure date. It reiterated this date in August when it received clearance from the UK’s competition watchdog, and again on Thursday following the latest reports.
The deal has caused controversy among VMware customers and partners, with Broadcom CEO Hok Tan repeatedly rebuffing claims that Broadcom will raise VMware prices after the union completes.
In March, Tan penned a blog seeking to hammer home Broadcom’s commitment to its partner ecosystem, which currently comprises 35,000 partners. Then in May, he proclaimed that Broadcom intends to invest an “incremental” $2bn a year in VMware, half of which will go on R&D and half on “accelerating the deployment of VMware solutions through VMware and partner professional services”.
“A coin flip”
Investors, however, don’t appear entirely convinced Broadcom will get its man following an FT report suggesting China may be dragging its heels on approving the deal.
Beijing is contemplating holding up the deal following the US’ move to block Chinese access to high-performance chips earlier in the week, the FT reported.
The news sent VMware’s share price down 9%.
VMware’s shares were discounting about a 50% chance that the union will complete following the reports, down from 90% on Monday, Barron’s estimated.
One large hedge fund investor quoted in the FT report agreed, saying VMware’s stock is “now it is trading like a coin flip”. The virtualisation giant’s share price has not shown any signs of recovery since then.
In terms of recent enterprise tech transactions by size, only Cisco’s $28bn takeover of Splunk comes close. That deal, which is set to close by the end of calendar Q3 2024, was roundly welcomed by Cisco partners.
Despite the latest brouhaha, Broadcom and VMware reiterated their expectations that their union will complete in the anticipated timeframe.
Doug Woodburn is editor of IT Channel Oxygen
