UK raises concerns on Broadcom’s $61 bn deal to buy VMware

Britain’s Competition and Markets Authority (CMA) said U.S. chipmaker Broadcom’s $61 billion deal to buy VMware could dampen innovation and drive up the cost of computer parts and software for servers.
Broadcom StrataXGS Tomahawk 5 switchBritain’s competition regulator said it would refer the $61 billion deal to an in-depth inquiry unless its concerns were addressed. Broadcom  agreed to buy the cloud computing and virtualisation company last year to diversify into enterprise software.

Main concerns

Broadcom, a US-based technology company, makes and sells specialist hardware components – such as network interface cards (NICs) and storage adapters – used in servers.

US-based VMware specialises in software products and services, including server virtualisation software, which enables servers to be used more efficiently by separating them into multiple virtualised servers.

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. CMA says 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 choice for customers.

CMA says the merger may result in Broadcom obtaining sensitive information (such as details of new planned products) that its hardware rivals currently supply to VMware. This could damage innovation and leave customers worse off, including fewer product updates or new features.

“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,” CMA Executive Director David Stewart said in a news statement.

The regulator said Broadcom had five working days to address its concerns, after which it would decide within a further five days whether to refer the deal to an in-depth investigation.

Broadcom said it was working constructively with the CMA and it was confident it would address any concerns.

“We will demonstrate that the transaction enhances competition and benefits businesses and consumers through increased quality, innovation and choice,” a spokesperson said in a statement.

“The combination of Broadcom and VMware is about enabling enterprises to accelerate innovation and expand choice by addressing their most complex technology challenges in this multi-cloud era, and we are confident that regulators will see this when they conclude their inquiry.”

The European Union is set to issue an antitrust warning about the deal, Reuters reported last month.

The EU competition enforcer, which declined to comment on the report, will make a decision by June 21.

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