UK Watchdog Rules Against Broadcom’s $61bn VMware Buy

The United Kingdom has signalled its opposition to Broadcom’s proposed $61 billion (£49.8bn) acquisition of virtualisation giant VMware.

It was back in May 2022 when the deal was first announced, but soon the acquisition began to attract the attention of antitrust regulators around the world.

In July 2022 the US Federal Trade Commission (FTC) said it would undertake a more in-depth “second look” investigation of the Broadcom-VMware deal, in line with a policy announced in September 2021.

CMA decision

Large tech deals have been attracting close regulatory scrutiny amidst concerns of excessive market power being concentrated in the hands of a few players.

In November 2022 the CMA announced it was following the European Union in launching an initial review of the Broadcom deal to buy VMware, over concerns the deal could substantially hurt competition in the UK.

Then in January 2023 the CMA announced that it had begun a Phase 1 investigation of the deal, with a decision expected to be announced on 22 March over whether to refer the merger for a Phase 2 investigation.

Now the CMA has concluded that 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 said it is 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 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.

The CMA is concerned that this could damage innovation and leave customers worse off, including fewer product updates or new features.

“Computing infrastructure underpins the services that public and private organisations rely on to support their operations and to support their users and customers – that is to say, all of us,” noted David Stewart, executive director at the CMA.

“Servers are a vital building block, functioning largely thanks to hardware products made by firms like Broadcom, working in unison with virtualisation software from firms like VMware,” said Stewart.

“We are concerned this deal could allow Broadcom to cut out competitors from the supply of hardware components to the server market and lead to less innovation at a time when most firms want fast, responsive, and affordable IT systems,” Stewart concluded. “It’s now up to Broadcom to respond to our concerns or face a more in-depth investigation.”

The CMA said that Broadcom has five working days to offer legally binding proposals to address the concerns identified.

The CMA would then have a further 5 working days to consider whether this addresses its concerns, or if the case should be referred to the next stage – a Phase 2 investigation.

Acquisition spree

US chip maker 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.