UK gives provisional nod to Broadcom acquisition of VMware

After giving it some more thought, the UK’s competition watchdog is now in favour of Broadcom splashing out $61 billion for VMware.

The Competition and Markets Authority (CMA) has been conducting a more in-depth, Phase 2 inquiry into the merger after its Phase 1 investigation gave it reason to believe the deal could hamper innovation in the server market.

On Wednesday, the watchdog revealed that upon further examination of evidence provided by Broadcom, VMware and third parties, the tie-up will not substantially reduce competition in the supply of server hardware components in the UK.

The acquisition of VMware, agreed in May 2022, will make Broadcom – already one of the world’s biggest suppliers of hardware and software solutions to the networking and server markets – also one of the world’s biggest suppliers of server virtualisation software.

Understandably, it raised concerns at the CMA that Broadcom would have the means and incentive to prevent competing products from working as effectively – or at all – with VMware’s solutions. It was also concerned that Broadcom would get a good look at any intellectual property its rivals have provided to VMware.

The CMA wasn’t the only worried watchdog.

The European Commission in April sent Broadcom a statement of objections regarding the acquisition, citing more or less the same concerns as the CMA. And across the pond, the US Federal Trade Commission (FTC) was rumoured to be sounding out Broadcom’s rivals on whether they were willing to publicly oppose the deal.

Whatever evidence Broadcom has submitted, or pledges it has made, seems to have had the desired effect.

The EU last week gave its conditional approval of the transaction. To secure its backing, Broadcom pledged to guarantee rivals’ access to any APIs, materials, tools and technical support needed to produce and certify their own fibre channel host bus adapters (FC HBAs). It also committed to ensuring their interoperability with VMware’s server virtualisation software.

Broadcom also committed to offering the source code for its current and future FC HBA drivers under an irrevocable open source licence, ensuring that rivals can reuse and modify Broadcom’s drivers for their own use, and again ensure compatibility with VMware.

In addition, Broadcom agreed to an organisational separation between the team working on Broadcom’s FC HBAs and the team in charge of third-party certification and tech support. It also pledged to protect any confidential information obtained during the certification and interoperability testing processes.

Meanwhile, the FTC seems to have gone quiet, with no more rumours emerging that it plans to interject. It has perhaps been a bit preoccupied by the Microsoft-Activision saga.

And now the CMA has given it the provisional green light.

“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 a statement from Richard Feasey, chair of the independent CMA inquiry panel that investigated the merger. “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. After carefully considering a broad range of evidence, we have provisionally found that this deal would not harm competition.”

The CMA will now open consultation on its provisional approval before reaching a final decision. Its final report is due on 12 September.

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