Broadcom’s acquisition of VMware cleared by CMA

Broadcom’s multi-billion dollar takeover of VMware has cleared another hurdle, having been given the nod by the UK Competition and Markets Authority (CMA) following an in-depth investigation.

The clearance follows approval in the EU, as well as Australia, Brazil, Canada, Israel, South Africa, and Taiwan. The company also stated it had foreign investment control clearance in all necessary jurisdictions.

The deal is valued at $69 billion and consists of $61 billion in equity and the assumption of $8 billion of debt, based on the price of Broadcom’s stock as of May 25, 2022. It is also the largest acquisition investigated by the CMA.

The authority opted to refer the deal to a Phase 2 inquiry, having identified competition concerns in an initial Phase 1 investigation that it felt warranted a more detailed review.

These concerns centered on the merged company being able to prevent products from Broadcoms’ competitors from working correctly with VMware’s server virtualization software. Another concern was if the deal might harm innovation as the competition withheld commercially sensitive information from a potential competitor.

In both cases, the review concluded that - on balance - there wasn’t an issue and “the deal does not substantially reduce competition”.

The review reported that the financial cost in terms of lost business outweighed the benefit to Broadcom and VMware of making rival products work less well. The potential for reduced innovation was also unlikely to be a concern since any information shared with VMware was unlikely to occur at a point when Broadcom could commercially benefit from it.

However, there remains work to do in closing the deal. Broadcom described its progress toward securing regulatory approval in other regions as “advanced” and said it believed that all remaining approvals would have been secured by October 30, 2023.

According to Broadcom: "In the U.S., the Hart-Scott-Rodino pre-merger waiting periods have expired, and there is no legal impediment to closing under U.S. merger regulations."

A more significant obstacle is possible, however, in the form of authorities within China.

Broadcom generates enough revenue from China to trigger a review from regulators. Last week, Intel called off its $5.4 billion Tower Semiconductor deal after failing to secure approval from Chinese regulators. 

However, while the Intel deal was all about semiconductors, Broadcom’s is outside of that industry. China’s regulatory authorities have also approved other non-semiconductor acquisitions in recent months, an example being Microsoft’s acquisition of Activision.

This means that there remains every chance that Broadcom’s acquisition of VMware could be approved by Chinese regulators and the company’s October 30 target for receiving all remaining approvals achieved.