Buckle up: $61 billion VMware acquisition a done deal by October 30, says Broadcom
Competition watchdog goes from a host of worries to a shrug.
A $61 billion Broadcom VMware buyout is on track to close in late October. That’s according to the chipmaker, after the deal was given final clearance by the UK’s Competition watchdog today (August 21) – despite its earlier forceful criticism of the planned buyout, made in March 2023.
Hold on to your horses, folks. As Andy Sinclair, CTO at the UK's Brightsolid has earlier noted, Broadcom does well out of its acquisitions but a “perceived lack of innovation and the sweating of existing product lines to their customers has been viewed as being analogous to a rent extraction business model [with]... no clear long-term roadmap for growth.”
(Andy’s full view is more nuanced and positive. Read it here.)
The blockbuster deal is the biggest enterprise technology sale since Dell’s $67 billion EMC buyout and the UK’s Competition and Markets Authority had warned starkly in a Phase 1 investigation that the “merged Entity would be able to leverage VMware’s market power in server virtualisation software to weaken Broadcom’s hardware competitors, for example by impairing the certification of competitors’ drivers…”
"We are concerned this deal could allow Broadcom to cut out competitors from the supply of hardware components to the server market and lead to less innovation at a time when most firms want fast, responsive, and affordable IT systems," CMA boss David Stewart said at the time. The watchdog added that the way VMware certifies interoperability of server products with its virtualisation software also gives it access to “product samples, product roadmaps, driver source code, and other technical information” that could, post-merger, “could harm competition.”
But a subsequent review by an independent panel (chaired by Richard Feasey, a former group public policy director at Vodafone) determined that the “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.”
(Whether the CMA felt under immense pressure to be a little more congenial to M&A activity in the wake of a controversial “no” to Microsoft’s Activision Blizzard buyout that resulted in Microsoft executives railing against the UK as a place to do business, is an open question…)
Broadcom has achieved “legal merger clearance in the European Union, as well as in Australia, Brazil, Canada, Israel, South Africa, and Taiwan, and foreign investment control clearance in all necessary jurisdictions” it confirmed on August 21, 2023. “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 regulation” the company added today.
(It is still awaiting approval from China’s and Japan’s regulators.)
With cloud hyperscalers and Apple making more of their own chips and Intel pushing aggressively into the chip foundry business, Broadcom is no doubt looking to diversify its earnings and however "old tin" VMware may look to some, it still makes a lot of money ($3 billion+ in Q1 revenues) and may open up some interesting new opportunities at the hardware-software nexus for the cannily run Broadcom and its shareholders.
What that means for VMware staff and indeed customers over the longer horizon remains to be seen. Broadcom meanwhile, says of course that it is "confident that the combination with VMware will enhance competition in the cloud and benefit enterprise customers by giving them more choice and control over where they locate their workloads."
Stay tuned and share your views. We're also open to guest commentary on this deal and what it says about the changing enterprise IT market too. Get in touch.
