British authorities investigate Broadcom/VMware deal • The Register

The UK Competition and Markets Authority has opened a preliminary investigation into Broadcom’s proposed acquisition of VMware.

The agency said in an announcement on Monday that the inquiry would assess whether the transaction constitutes a “relevant merger situation” within the meaning of the Enterprise Act 2002 and, if so, “whether the creation of that situation is likely to lead to a significant reduction in competition one or more markets in the United Kingdom for goods or services.”

The law provides a two-step test to identify a “relevant merger situation”:

• The UK turnover value of the Acquired Business exceeds £70m (the “Sales Test”); or
• The concentration would result in the creation or increase of at least a 25 per cent share of the supply of goods or services in the United Kingdom or a substantial part of the United Kingdom (the ‘share of supply’ test).

A combination of VMware and Broadcom almost certainly meets both thresholds alone with the virtualization giant’s core private cloud stack. The agency’s request for input from interested parties therefore appears to be an opportunity to discuss whether the transaction will hurt markets.

That may be a tough case in VMware’s core server virtualization market. While Virtzilla is often criticized for charging high prices, many open source and proprietary alternatives are available.

While other regulators have considered the deal, Broadcom has argued that VMware’s multi-cloud management tools improve the competitiveness of the cloud computing market, regardless of who owns them.

The overlap between VMware’s security portfolio and Broadcom’s products inherited from Symantec and CA could be portrayed as a more uncomfortable market concentration — though again, alternatives aren’t hard to find.

If the regulator decides that the Broadcom/VMware deal is indeed a “merger relevant situation,” a public interest test will take place if the transaction is determined to have implications for national security, financial stability, media pluralism, or combating a emergency in the field of public health.

The registry can’t imagine the circumstances under which Broadcom would pass these tests when purchasing VMware.

The law includes permissions for tampering with cryptographic technology — but not the sort of thing offered by either VMware or Broadcom.

Broadcom has described the investigation as expected, unconcerned, and unlikely to quash its ambition to close the deal by the end of 2023. ®