(Bloomberg) — Traders betting on whether VMware Inc. will successfully sell itself to Broadcom Inc. could find it harder to get out of at least part of their position after Monday.
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VMware has given investors until 5 p.m. New York time on Monday to decide whether to get paid in cash or Broadcom shares. Once stockholders choose how they wish to be paid, they essentially can’t sell their shares until the acquisition closes.
On Tuesday, the company’s shares will probably trade closer to about $142.50, the amount that investors get paid if they elect to receive cash. That’s below where VMware’s Monday afternoon value of about $156.22, meaning that shareholders that sell now may be able to generate more cash proceeds than they would earn from shorting a share on Tuesday.
For shareholders that choose how they wish to be paid, it’s unclear how long their position will be locked up. Broadcom said on Friday that it expects the transaction to close on Oct. 30, but reports last week said Chinese regulators may hold up their approval of the transaction after the US tightened chip sanctions.
Investors that elect to receive payments essentially won’t be able to sell their shares after Monday, which may also be part of why the company’s shares have fallen in recent sessions, according to Aaron Glick, a merger arbitrage specialist at TD Cowen. Last week, the company’s shares fell about 15.6% between Monday’s close and Friday’s.
While questions about China’s approval for the deal were a factor, “the impending election deadline was also causing an overhang,” Glick said.
Holders of VMware have to decide whether to get the cash payment or 0.252 shares of Broadcom common stock for each of their VMware shares. That second option is worth about $215.11 per VMware share as of Friday’s close, or around 51% more than the cash payout.
But Broadcom is limiting the amount of shares it’s willing to pay for VMware, and if enough VMware investors elect to get paid in shares, they will only get about 50% of their payment in Broadcom equity, with the rest coming in cash, according to filings.
The large difference between the cash payout and the value of the share payment stems from the deal having been announced in May 2022, when Broadcom’s shares weren’t worth as much. Broadcom’s stock has gained more than 50% this year on hopes it will profit from advancements in artificial intelligence.
–With assistance from Liana Baker and Michelle F. Davis.
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Jessica Roberts is a seasoned business writer who deciphers the intricacies of the corporate world. With a focus on finance and entrepreneurship, she provides readers with valuable insights into market trends, startup innovations, and economic developments.
