Shares of VMware (NYSE:VMW) fell 7% to $166.34 on Tuesday, amid rising U.S.-China trade tensions and fears that China may retaliate against the U.S.'s tightened semiconductor sales restrictions by blocking Broadcom (NASDAQ:AVGO)'s impending $61 billion acquisition of VMware. The U.S.-China trade tensions have cast a shadow over the semiconductor industry, affecting stocks including Nvidia (NASDAQ: NASDAQ:NVDA), Intel (NASDAQ: NASDAQ:INTC), and Advanced Micro Devices (NASDAQ: NASDAQ:AMD).
According to InvestingPro data, VMware has a market cap of $72.45 billion and a P/E ratio of 50.26. Despite a declining trend in earnings per share, as indicated by InvestingPro Tips, the company maintains high earnings quality with free cash flow exceeding net income and yields a high return on invested capital.
The restrictions on semiconductor sales, led by Commerce Secretary Gina Raimondo, have fuelled concerns that China could obstruct tech deals like the VMware-Broadcom transaction. This comes as the U.S. government aims to curb China's access to advanced technology.
Representatives from both Broadcom and VMware told Barron’s that they expect the deal to close by October 30, with the acquisition agreement announced in May 2022. The deal involves Broadcom purchasing VMware in a combination of cash and stock, assuming $8 billion of VMware's net debt.
Broadcom, a prominent player in the Semiconductors and Semiconductor Equipment industry with a market cap of $366.62 billion and a P/E ratio of 26.53, as per InvestingPro data, has consistently increased its earnings per share and has raised its dividend for 13 consecutive years, according to InvestingPro Tips.
The terms allow VMware shareholders to choose either $142.50 per share in cash or 0.252 shares of Broadcom common stock. The total purchase price is expected to be divided equally - 50% cash and 50% Broadcom shares - implying a total consideration of about $181.85 per VMware share.
This unfolding situation highlights the potential impact of geopolitical tensions on global tech deals, with the fate of the Broadcom-VMware transaction now hanging in balance amidst the escalating U.S.-China trade dispute. For more detailed insights and tips on these companies, consider exploring the InvestingPro platform, which offers numerous additional tips for both VMware and Broadcom.
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