The gap between VMware Inc.’s stock price and the value of Broadcom Inc.’s proposed takeover narrowed by almost half as a nod from UK antitrust watchdog bolstered investors’ confidence that the acquisition will go through.
The chipmaker’s shares rallied as much as 7.3% Wednesday to $170 after the UK’s Competition and Markets Authority provisionally cleared the tie-up. The surge moved the stock to as little as $13.50 less than the approximately $183.50 investors will receive in the cash-and-stock offer, compared with a difference of more than $26 Tuesday, according to an estimate based on market values.
The timing of the decision is a “nice surprise” to investors because the CMA’s in-depth review deadline was not until September, which means any clearance was not expected so soon, said Frederic Boucher, a risk arbitrage analyst at Susquehanna International Group.
Since the merger was announced last year, regulatory uncertainty had cast doubt on whether it was likely to be completed, which left VMware’s stock in June as much as $41 below what investors stand to receive in the deal.
The earlier-than-expected UK decision came shortly after a greenlight from European Union last week. That leaves US antitrust clearance as one of the remaining hurdles to the biggest-ever semiconductor transaction.
Read: VMware Rallies Closer to Broadcom Deal Price as EU Clears Merger
Susquehanna’s Boucher also noted that this ruling came after the CMA faced criticism for its opposition to Microsoft Corp’s takeover of Activision Blizzard Inc., which the regulator has since moved to reconsider.
“Perhaps the difficult situation the CMA created for itself in the Activision-Microsoft deal helped clear the way for Vmware and Broadcom to some degree,” said Boucher, whose firm is a market maker in Broadcom shares. “The CMA may be a little more cautious in blocking deals going forward.”
Read: Merger-Arb Funds See Tide Turning After FTC’s Big Legal Setback
