Broadcom’s $61B VMware Deal Is Being Put Through Regulatory Crucible

Regulators around the world are demanding assurances that Broadcom will not limit its competitors’ access to VMware should the deal go through.

Broadcom has just days to craft an argument that can calm government regulators who fear the San Jose, Calif. semi-conductor giant may use its control of VMware to harm rivals and the market.

The U.K.’s Competition and Market Authority (CMA) has given Broadcom until May 9 to file a written response to its nine-page “Issues Statement” that mapped out the reasons why it is concerned about the $61 billion buyout.

“The Merged Entity would be able to leverage VMware’s market power in server virtualization software to reduce the competitiveness of Broadcom’s hardware rivals by, for example, impairing the certification of competitors’ drivers for Ethernet NICs, FC [Fibre Chanel] HBAs, and storage adapters, and impairing access to VMware’s API for competitors’ FC switches,” regulators there wrote on April 21.

“The effect on competition could be substantial given that the relevant hardware markets are already relatively concentrated and interoperability with VMware’s server virtualization software is very important to server hardware manufacturers.”

As Broadcom races to respond to the UK, the clock is also ticking on an internal deadline: the May 26 outside date. That’s the date where VMware could be allowed out of the deal, unless its leaders or Broadcom’s shift that date to later in the year. In February, both sides agreed to do just that, and pushed the outside date back 90 days. While either side can extend that marker, the deadline is less than a month away.

While partners have frequently told CRN they are excited at some of the prospects the deal could bring and are following along as it progresses, their customers do not seem to care who owns VMware as long as it delivers the outcomes they need.

“The one thing we’ve noticed among our customer base is that they don’t necessarily care where VMware ultimately ends up,” said Gary McConnell, CEO of VirtuIT Systems, a New York-based solution provider with a VMware Master Services Competency. “The technology is solid as is the leadership, so it’s been business as usual in that regard.”

However, the U.K. CMA is not the only regulatory board that has worries about the sale.

The European Commission, the competition watchdog for the European Union, is also sounding the alarm on the merger following a monthslong investigation that began in December and included a look at Broadcom’s internal documents.

On April 12, the commission said it feared Broadcom could use the newly acquired technology from VMware to turn off competitors’ access to it, which may “in turn lead to higher prices, lower quality and less innovation for business customers and ultimately consumers.”

“The Commission is concerned that Broadcom may restrict competition in the global markets for the supply of FC HBAs and storage adapters by foreclosing competitors’ hardware by delaying or degrading their access to VMware’s server virtualization software,” the commission wrote in an April 4 filing.

Meanwhile in the U.S., the Federal Trade Commission told CRN it is still not commenting on what is now a 10-month-long in-depth investigation of the acquisition.

Broadcom has repeatedly said it expects a merger the size of the one it has proposed with VMware could take longer to close. When it announced the sale on May 26, 2022, Broadcom said it expected to close within this fiscal year, which ends in October.

The deal has cleared regulators in Canada, Brazil and South Africa, but it is still awaiting clearance in China.

Here is a rundown of where the it stands with regulators around the world, as well as what Broadcom and corporate leaders say.

The U.K. Competition and Markets Authority

First look: Nov. 21, 2022

In-depth investigation announced: March 2023

Next Deadline: May 9

The U.K. Competition and Markets Authority (CMA) gave Broadcom a window of a little more than two weeks to respond to specific concerns it has.

“The CMA considered that the Merged Entity would be able to leverage VMware’s market power in server virtualization software to reduce the competitiveness of Broadcom’s hardware rivals by, for example, impairing the certification of competitors’ drivers for Ethernet NICs, FC HBAs, and storage adapters, and impairing access to VMware’s API for competitors’ FC switches,” the CMA wrote in its April 21 “Issues Statement.”

In addition, regulators said Broadcom could impair interoperability between its rivals’ new hardware products that have not yet had drivers developed and certified. As these new products are not currently installed in existing servers, it would not cause any disruption to customers’ existing servers, the CMA said.

Also of concern is whether Broadcom will keep VMware’s API open once the takeover is completed.

“In relation to FC switches, the Merged Entity could reduce VMware’s engagement in bilateral discussions which facilitate the implementation of VMware’s APIs, avoid or delay making any new APIs available to rivals supplying FC switches and/or choose not to make APIs public in the future,” the CMA said.

The European Commission

First look: November 2022

In-depth investigation announced: December 2022

Next Deadline: June 21, 2023

The European Commission (EC) also is worried about Broadcom’s competitors and innovation in the market. When it comes to what worries them, the two agencies differ slightly

The EC is concerned that Broadcom may interfere with the development of SmartNICs by rivals through its access to VMware’s software. In addition, the commission is concerned that Broadcom could stop offering VMware as a stand-alone product.

“The Commission has conducted a wide-ranging investigation to understand the market and the potential impact of the deal. This investigation has included, among others, analyzing internal documents provided by the parties and gathering views from server users and manufacturers, as well as from virtualization software suppliers,” the agency wrote.

“As a result of this in-depth investigation, the Commission is concerned that Broadcom may restrict competition in the global markets for the supply of FC HBAs and storage adapters by foreclosing competitors’ hardware by delaying or degrading their access to VMware’s server virtualization software.”

Broadcom now has the opportunity to reply to the Commission’s Statement of Objections, to consult the Commission’s case file and to request an oral hearing.

The U.S. Federal Trade Commission

First look: June 2022

In-depth investigation announced: July 11

Next deadline: Not stated

The longest-running investigation into the merger belongs to the U.S. Federal Trade Commission, which first looked at it within two weeks of Broadcom’s announcement in May 2022.

By July 11, the FTC had seen enough to determine that, as proposed, the sale warranted a deeper look. The FTC told Broadcom it had launched a “second request” investigation on July 11.

Since that date, the agency had provided no public statement on its progress. Monday, the FTC again declined to comment when asked by CRN to provide an update on the nearly 10-month-long probe.

Will There Ever Be A Rainbow?

While several hurdles remain before Broadcom and VMware can tie the knot, some countries have given the corporate couple their blessing.

According to Broadcom, Australia, Canada and Brazil have all approved the buyout.

South Africa’s Competition Commission said in a Dec. 9 newsletter that it saw no reason to object to the union.

“The Commission found that the proposed transaction is unlikely to result in a substantial prevention or lessening of competition in any relevant markets. The Commission further found that the proposed transaction does not raise any public interest concerns,” it wrote after looking at the deal beginning in October 2022.

In April, Broadcom told CRN it was “making progress with our various regulatory filings around the world and had won foreign investment clearance in the U.K.”

“That foreign investment control clearance follows those received in Germany, France, Austria, Denmark, Italy and New Zealand,” the company wrote.

What Do The Leaders Say?

While there is growing concern about the transaction among analysts, executives with a stake in the deal remain confident it will pass.

Dell Technologies founder, Chairman and CEO Michael Dell (pictured), who owns 40 percent of VMware, told CRN he is “confident” the merger will pass. Broadcom President and CEO Hock Tan said the same during the company’s most recent earnings call.

And VMware CEO Raghu Raghuram told The Wall Street Journal last month that he too is confident the sale will be approved in the timeline discussed.

For its part, Broadcom also said it expects to close this year, as it has forecast since May 2022.

“We continue to expect the transaction will close in Broadcom’s fiscal year 2023,” the company told CRN in April. “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.”

What Do Partners Think?

The machinations of deals between gigantic corporations with billions of dollars are interesting to solution providers but not to their customers, said Gary McConnell, CEO of VirtuIT Systems, a New York-based solution provider with a VMware Master Services Competency.

Since the deal was announced, partners have frequently told CRN they are excited at some of the prospects it could bring and are following along as it progresses,. Their customers, however, do not seem to care who owns VMware as long as it delivers the outcomes they need.