UK’s CMA provisionally approves $69bn Broadcom-VMware tech deal

Broadcom’s proposed acquisition of VMware, a deal valued at $69 billion, has provisionally cleared the initial review by the UK’s Competition and Markets Authority (CMA).

After an in-depth review, the independent CMA panel concluded that the merger would not weaken competition in the critical computer server products market.

Broadcom, a leading US technology firm, manufactures and sells computer server hardware components like network interface cards (NICs) and storage adapters. VMware, on the other hand, provides software products and services, including server virtualization software, which enhances server efficiency by converting them into multiple virtualized servers. These products are heavily used by numerous businesses and public bodies in the UK, ranging from major banks and retailers to government departments.

The CMA initially referred the deal for a Phase 2 inquiry following its Phase 1 investigation, citing potential competition concerns. The panel closely analyzed the potential impacts of the merger, particularly how it could potentially affect Broadcom’s rivals and the potential harm to innovation.

The panel investigated concerns that the merged company could disadvantage competitors by potentially ensuring their products work less effectively, or not at all, with VMware’s server virtualization software. However, they provisionally determined that the financial benefit to Broadcom and VMware from such a move would not outweigh the potential financial cost in terms of lost business.

In terms of innovation, the panel looked into whether sensitive information would need to be shared between Broadcom’s competitors and VMware to ensure compatibility between hardware and software. They concluded that the merger would unlikely harm innovation, especially since product adaptation information only needs to be shared when it is too late to provide a commercial advantage to Broadcom.

Richard Feasey, chair of the independent inquiry panel overseeing the investigation, said, “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. 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.”

These findings are still provisional and the CMA will consult further on them and welcome further views before making a final decision. The CMA has invited responses to its provisional findings by 9 August 2023, and it aims to issue its final report by 12 September 2023.

Recently, the European Commission has given conditional approval to Broadcom to proceed with its acquisition of VMware.