Broadcom’s $61bn VMware Deal Faces Phase 2 CMA Probe

Broadcom’s decision to play hardball with the UK competition regulator, the Competition and Markets Authority (CMA), has triggered an in-depth phase 2 investigation.

It was back in May 2022 when Broadcom first announced it would acquire virtualisation giant VMware for $61 billion (£49.4bn).

But the proposed acquisition soon attracted the attention of antitrust regulators and in July 2022 the US Federal Trade Commission (FTC) said it would undertake a more in-depth “second look” investigation of the Broadcom-VMware deal, in line with a policy announced in September 2021.

Competition concerns

Large tech deals have been attracting close regulatory scrutiny amidst concerns of excessive market power being concentrated in the hands of a few players.

In November 2022 the UK’s CMA announced it was following the European Union and US in launching an initial review of the Broadcom deal to buy VMware, over concerns the deal could substantially hurt competition in the UK.

In January 2023 the CMA began a Phase 1 investigation of the deal, with a decision expected on 22 March 2023, over whether to refer the merger for a Phase 2 investigation.

Then last week on 22 March the CMA concluded that Broadcom’s deal to buy VMware could lead to less innovation and drive up the cost of computer parts used by the UK government, banks and telecoms.

The CMA also concluded that 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.

The CMA said it was concerned that 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 ultimately choice for customers.

The UK investigation also found that the merger may result in Broadcom obtaining commercially sensitive information (such as details of new planned products) that its hardware rivals currently supply to VMware.

The CMA said last week it was concerned that this could damage innovation and leave customers worse off, including fewer product updates or new features.

Phase 2 probe

The CMA gave Broadcom five working days to offer legally binding proposals to address its identified concerns, before the regulator made a decision whether the case should be referred to the next stage – a Phase 2 investigation.

But Broadcom opted not to offer the UK competition regulator any proposals to address its concerns about the deal.

“On 22 March 2023, Broadcom informed the CMA that it would not offer such undertakings to the CMA,” the British regulator noted.

“Therefore, pursuant to section 33(1) and in accordance with section 34ZA(2) of the Act, the CMA has decided to refer the Merger to its chair for the constitution of a group under Schedule 4 to the Enterprise and Regulatory Reform Act 2013 to conduct a phase 2 investigation,” it concluded.

The Phase 2 investigation will announce its final decision on 12 September 2023.

CMA success

The CMA has had some success in forcing tech firms to unwind deals it believes harms competition, even when both firms are based in the United States and not the UK.

This was evidenced when the CMA last October ordered Facebook parent Meta Platforms to divest itself of Giphy.

Meta at the time said it accepted the CMA decision as the final word on the matter, and would sell off Giphy, settling a dispute that saw both sides remain at loggerheads for nearly two years.

Both firms are headquartered in the United States.