UK Clears Broadcom’s $61 Billion VMware Purchase

Broadcom’s expansion into the enterprise software segment continues, after the UK regulator added its provisional approval to a huge acquisition.

It comes after the US chipmaker had first announced its proposed VMware acquisition back in May 2022 for $61 billion (£47.2bn) – a move that triggered multiple regulatory probes around the world.

Last week the European Commission approved the proposed acquisition of VMware by Broadcom. That approval was conditional upon “full compliance with the commitments offered by Broadcom.”

UK investigation

Broadcom in May had offered European officials ‘interoperability remedies’ to rivals such as Marvell and others.

This was to address European Union antitrust concerns that Broadcom could restrict competition in some hardware components (such as Fibre Channel Host-Bus Adapters, storage adapters and Network Interface Cards) which interoperate with VMware’s virtualisation software.

In addition, Marvell and other rivals will also have guaranteed access to the source code for all of Broadcom’s current and future FC HBA drivers through an irrevocable open source license.

Meanwhile the UK regulator had also been conducting an investigation, after the Competition and Markets Authority (CMA) announced last November it was launching an initial review of the Broadcom deal to buy VMware, over concerns the deal could substantially hurt competition in the UK.

In January 2023 the CMA announced that it had begun a Phase 1 investigation of the deal.

Then in March 2023 the CMA concluded Broadcom’s deal to buy VMware could lead to less innovation and drive up the cost of computer parts used by the UK government, banks and telecoms.

The CMA found that VMware has a leading position in server virtualisation software and that compatibility with its software is critical for the server hardware components sold by Broadcom and its rivals.

The CMA also said it was concerned that the deal could enable Broadcom to harm its rivals by preventing them from being able to supply VMware-compatible hardware components – such as NICs and storage adapters – reducing competition and ultimately choice for customers.

The CMA investigation also found that the merger may result in Broadcom obtaining commercially sensitive information (such as details of new planned products) that its hardware rivals currently supply to VMware.

It referred the deal to a Phase 2 investigation.

CMA approval

But now the CMA has announced that its panel have provisionally found Broadcom’s deal to buy VMware would not weaken competition in the supply of critical computer server products.

The UK regulator said the panel had explored concerns that the deal could harm the ability of Broadcom’s rivals to compete if the merged company were to make their products work less well (or not at all) with VMware’s server virtualisation software.

However, the panel provisionally found that the potential financial benefit to Broadcom and VMware of making rival products work less well with VMware’s software would not outweigh the potential financial cost in terms of lost business.

The panel also considered whether the deal could harm innovation, but found the deal would be unlikely to harm innovation, in particular since information about new product adaptations only needs to be shared with VMware at a stage when it is too late to be of commercial benefit to Broadcom.

“Computer servers – often using the products of Broadcom and VMware – play a critical role in enabling us to work in the office or at home or to access TV shows or use banking services,” said Richard Feasey, chair of the independent inquiry panel carrying out the investigation.

“That’s why it’s important we investigate this deal to ensure that UK businesses continue to benefit from competition and innovation in the supply of server components,” said Feasey. “After carefully considering a broad range of evidence, we have provisionally found that this deal would not harm competition.”

The CMA said that its findings are provisional, and it will now consult on its findings and listen to any further views before reaching a final decision.

Interested parties have until 9 August to response to its provisional findings, ahead of the CMA issuing its final report by 12 September 2023.

Acquisition spree

The greenlight from British authorities means that VMware will be Broadcom’s largest ever purchase, and will expand the chipmaker’s move into enterprise software.

Broadcom in recent years has pursued an aggressive acquisition strategy, as it seeks to transform (via acquisitions) into a diversified technology company – with holdings ranging from microprocessors to cloud infrastructure software.

In 2016 for example Broadcom acquired fibre channel and storage area networking firm Brocade for $5.5 billion (£4.5bn).

Then in November 2017 Broadcom made an unsolicited $130 billion offer to acquire Qualcomm, but it lowered its takeover offer to $117bn, after Qualcomm raised its own bid for Dutch chip maker NXP Semiconductors NV to $44bn.

Broadcom’s attempted acquisition of Qualcomm was then blocked by the US Trump administration on national security grounds later in 2018.

But Broadcom did not take that setback lying down, and in 2018 it acquired IT veteran CA Technologies for $18.9 billion.

Then in 2019 Broadcom acquired Symantec’s security division for $10.7bn – although it quickly sold off the Symantec unit to Accenture in early 2020.