UK investigating Broadcom's VMware acquisition plan
The regulator is considering whether or not this transaction constitutes a 'relevant merger situation' as defined by the Enterprise Act of 2002
The UK's Competition and Markets Authority (CMA) on Monday announced that it has opened a preliminary investigation into US chipmaker Broadcom's proposed acquisition of VMware.
The regulator is now seeking comments from interested parties by 6th December to help it decide whether to officially open a detailed phase 1 inquiry into the deal.
The CMA said it was considering whether this transaction constitutes a 'relevant merger situation' as defined by the Enterprise Act of 2002, and if it does, 'whether the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.'
The Enterprise Act of 2002 provides two tests to identify a 'relevant merger situation.'
- The enterprise being acquired has a UK turnover that exceeds £70 million; or
- The merger would result in the creation or enhancement of at least a 25% share of supply of goods or services in the UK, or in a significant portion of the UK.
The proposed merger will almost certainly satisfy both criteria.
Following the preliminary investigation, the CMA may conduct a full 'phase 1' probe if it believes that the purchase would result in a significant decrease of competition within any UK markets.
The $61 billion Broadcom-VMware deal, which was announced in May, is the second largest so far in 2022, after Microsoft's $69 billion acquisition of Activision, and represents Broadcom's aim to expand its business into enterprise software.
Broadcom is best known for its chip business, which designs and manufactures semiconductors for modems, Wi-Fi and Bluetooth chips that are used in a variety of products.
VMware, on the other hand, has long been considered as one of the most important players in the cloud computing sector. Its services are used by large companies to manage private and public cloud networks, as well as data centres.
By purchasing VMware, Broadcom would be able to diversify away from its main business of designing and selling semiconductors towards enterprise software, which has the potential for higher margins.
According to Broadcom, the new business will provide corporate customers a wider range of important infrastructure solutions to speed up innovation and handle the most challenging IT infrastructure requirements.
The European Commission is also conducting an investigation of the proposed merger between Broadcom and VMware and anticipates making a preliminary decision on December 20.
An investigation into the deal by the US Federal Trade Commission (FTC) has progressed to a more advanced level.
Regulators from all around the globe have been closely monitoring tech mergers due to concerns about the concentration of too much market power in too few hands, and the potential for larger corporations to acquire start-ups just to shut them down.
Just a few years ago, Broadcom made an offer to acquire Qualcomm for $117 billion. However, the deal was blocked by former President Donald Trump, citing national security concerns.
However, that did not stop Broadcom from seeking out other M&A transactions.
It spent around $18 billion in 2018 to acquire business software company CA Technologies. The following year, it purchased Symantec's enterprise security business for nearly $11 billion.