The potential acquisition of VMware Inc. by Broadcom Inc. received a significant boost as the gap between VMware's stock price and the value of the proposed takeover narrowed by nearly half. This surge in confidence among investors came after the UK's Competition and Markets Authority (CMA) provisionally cleared the tie-up. As a result, Broadcom's shares rallied by as much as 7.3% on Wednesday, reaching $170.
Investors were pleasantly surprised by the timing of the decision, as the CMA's in-depth review deadline was not until September. The fact that clearance was granted earlier than expected boosted investor confidence further. Frederic Boucher, a risk arbitrage analyst at Susquehanna International Group, described the decision as a "nice surprise" to investors.
The announcement by the CMA comes just days after the European Union also gave its green light to the merger. With the UK and EU approvals in place, the final hurdle remaining is the clearance from US antitrust authorities. Should this clearance be obtained, it would pave the way for the biggest-ever semiconductor transaction.
The uncertainty surrounding the regulatory approval has cast doubt on the completion of the merger since it was announced last year. Consequently, VMware's stock had plunged by as much as $41 below the offer price at one point in June. However, the recent approvals from both the UK and EU have provided a significant boost to the stock's price and investor confidence.
It is worth noting that the CMA's decision regarding the Activision-Microsoft deal, which created a difficult situation for the authority, may have influenced its approach to the VMware-Broadcom merger. As a result, the CMA may be more cautious in blocking potential deals going forward. This is seen as an encouraging sign for Broadcom and VMware's merger.
Overall, the narrowing of the gap between VMware's stock price and the offer value, coupled with the interim approval from the UK's CMA, has instilled confidence in investors. With the regulatory hurdles gradually being overcome, all eyes now turn to the US antitrust clearance decision, which will determine the fate of the landmark semiconductor transaction.