Following its investigation into the $61bn deal between Broadcom and VMware, the Competition and Markets Authority (CMA) has provisionally found the deal does not weaken competition.
The independent CMA panel looked at concerns that the deal could harm the ability of Broadcom’s rivals to compete if the merged company were to make their products work less well (or not at all) with VMware’s server virtualisation software. However, it provisionally found that the potential financial benefit to Broadcom and VMware of making rival products work less well with VMware’s software would not outweigh the potential financial cost in terms of lost business.
The panel also believed the deal would not harm VMware innovation. At the start of May, Hock Tan, CEO of Broadcom, posted a blog describing how the company plans to develop VMware. “VMware has an amazing opportunity to further grow and scale its pioneering virtualisation technology, and Broadcom is committed to innovation and building VMware’s professional services capabilities,” he wrote. “That’s why we plan to invest an incremental $2bn a year to better unlock customer value – with half focused on R&D and the other half focused on helping to accelerate the deployment of VMware solutions through VMware and partner professional services.”
In a Computer Weekly article looking at the acquisition, ABI Research senior research director Dimitris Mavrakis noted that Broadcom’s vision in acquiring VMware was to create products that allow enterprises to freely move their application payloads between private, public and hybrid cloud environments.
“Right now, this is not possible without cost and effort. Broadcom aims to address the technological and cost gaps. Application portability is a challenge for enterprises using the public cloud, but VMware alone may not have the resources to develop a world-class solution,” he wrote.
Mavrakis believes that with Broadcom’s experience and R&D investments, VMware will have a much stronger opportunity to compete and succeed in this market.
Discussing the CMA’s provisional findings, Richard Feasey, chair of the independent inquiry panel that carried out 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 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.”
Following its controversial decision against the Microsoft Activision Blizzard deal, the CMA recently extended its inquiry until August. Alex Haffner, competition partner at UK law firm Fladgate, believes the CMA is now under increased scrutiny.
“Merger decisions coming out of the CMA in the immediate aftermath of events in the Microsoft/Activision case will bear closer scrutiny for signs of whether the chastening experience of the CMA in the latter will inform the way it approaches ongoing cases,” he said.
Unlike the Microsoft/Activision Blizzard deal, Haffner believes the CMA has had an opportunity to look at the evidence in some detail. Haffner added: “The facts as presented suggest to the CMA that any competition concerns are less pronounced and so the merger should (provisionally) be allowed to proceed.”