The UK’s competition watchdog, the Competition and Markets Authority (CMA), has indicated its potential approval of Broadcom‘s colossal $61 billion acquisition of VMware. The stance is a result of a detailed Phase 2 inquiry conducted by the organization. Concerns were initially raised during the Phase 1 investigation, focusing on the potential for stifling innovation in the server market due to diminished competition.
On closer examination of the information gathered from Broadcom, VMware, and other entities, the CMA has concluded that the proposed coalition would not remarkably impede competition in the UK’s supply chain for server hardware components.
Upon successful conclusion of the deal, set in motion in May 2022, Broadcom would stand amongst the world’s largest server virtualisation software suppliers, over and above its existing stature as a leading provider of hardware and software solutions in the networking and server market segments.
The potential for intentional hindrance or even complete disruption of working conditions for rival products, in conjunction with VMware’s solutions, is a critical concern for the CMA. Broadcom’s capability to examine closely any intellectual property shared with VMware by their competitors is another serious worry.
However, the CMA isn’t alone in its unease. The European Commission expressed similar suspicions and sought clarifications from Broadcom in April. Meanwhile, there have been whispers about the US Federal Trade Commission (FTC) contemplating opposition to the proposed deal and gauging the response to the proposition from Broadcom’s competitors.
Nonetheless, Broadcom’s evidence and commitments seem to have tilted the scales in its favor. The EU, last week, approved the transaction conditionally. The European body’s support was contingent on Broadcom assuring access for competitors to necessary elements such as APIs, materials, tools, and technical support to manufacture and certify their fibre channel host bus adapters (FC HBAs). In addition, Broadcom has vowed to secure their interoperability with VMware’s server virtualisation software.
Subsequently, Broadcom has offered its existing and upcoming FC HBA drivers’ source code under an irrevocable open source license, ensuring that competitors can modify and reuse Broadcom’s drivers for their requirements, and guaranteed compatibility with VMware.
Moreover, they have promised an organizational separation between the teams overseeing Broadcom’s FC HBAs and third-party certification, along with technological support. They further pledged protection of any classified data procured during the certification and interoperability testing procedures.
While the FTC has maintained a low profile on these developments, the CMA has provisionally given the go-ahead for the deal.
Richard Feasey, chair of the independent CMA inquiry panel evaluating the merger, declared, “After carefully considering a broad range of evidence, we have provisionally found that this deal would not harm competition.”
The CMA now awaits feedback on its tentative approval ahead of a final decision. It looks forward to submitting its final report on 12 September.
