Conditional EC clearance for Broadcom VMware deal
July 13, 2023
By Colin Mann
The European Commission has approved, under the EU Merger Regulation, the proposed $61 billion (€57bn) acquisition of enterprise software provider VMware by software solutions specialist Broadcom. The approval is conditional upon full compliance with the commitments offered by Broadcom. The decision follows an in-depth investigation of the proposed acquisition.
The Commission’s investigation
The Commission’s preliminary market investigation found that, by acquiring VMware, Broadcom could have restricted competition in the markets for the supply of NICs [network interface card], FC HBAs [FibreChannel Host Bus Adapters] and storage adapters.
The Commission’s in-depth investigation confirmed that the transaction, as initially notified, would harm competition in the worldwide market for the supply of FC HBAs. At the same time, it ruled out possible competition concerns related to: (i) the market for the supply of NICs and storage adapters, (ii) the market for the development of SmartNICs; and (iii) the bundling of Broadcom’s virtualisation software with VMware’s.
In particular, the Commission found that:
- Broadcom would have the ability and incentive to foreclose Marvell, the only rival on the market for the supply of FC HBAs, by restricting or degrading the interoperability between VMware’s server virtualisation software and Marvell’s hardware. This would hamper Marvell’s ability to compete in a market where Broadcom is dominant, or at least holds a very strong position, ultimately leading to higher prices, lower quality and less innovation for business customers.
- Broadcom does not hold a strong position in the market for storage adapters and NICs and will continue to face competition from several rival suppliers.
- Broadcom would have no economic incentive to hinder the development of SmartNICs by other providers by decreasing VMware’s involvement in Project Monterey, an ongoing cooperation with three other SmartNICs sellers (NVIDIA, Intel and AMD Pensando), as such foreclosure would not be profitable.
- Broadcom would not be able to bundle VMware’s virtualisation software with its own software (namely mainframe and security software) as such products are purchased by different divisions in a customer organisation and/or at different points in time.
The remedies
To address the Commission’s competition concerns in the worldwide market for the supply of FC HBAs, Broadcom offered the following comprehensive access and interoperability commitments to Marvell and to any potential future entrant:
- Guaranteed access to the interoperability Application Programming Interfaces as well as to the materials, tools and technical support necessary for the development and certification of third-party FC HBAs. It also committed to ensuring (i) their interoperability with VMware’s server virtualisation software; and (ii), third parties’ access to this information at the same time as Broadcom.
- Guaranteed access to the source code for all of Broadcom’s current and future FC HBA drivers through an irrevocable open source license. This would allow Marvell and any potential entrant to ensure interoperability with VMware’s server virtualisation software and allow them to reuse and modify Broadcom’s drivers for its own use.
Furthermore, Broadcom committed to implementing an organisational separation between the team working on Broadcom’s FC HBAs and the team in charge of third-party certification and technical support. It also committed to ensuring protection of confidential information of Marvell and any potential entrant obtained in the context of the interoperability and certification processes.
The Commission carefully investigated the effectiveness of the remedies, collecting views from Marvell as well as server manufacturers, which are the main direct customers of FC HBAs. In view of the positive feedback from market participants, the Commission concluded that the proposed acquisition, as modified by the commitments, would no longer raise competition concerns and would maintain competition on the market for FC HBAs.
The Commission’s decision is conditional upon full compliance with the commitments, which will be in place for ten years. Under supervision of the Commission, an independent trustee will be in charge of monitoring compliance with the commitments. Moreover, a fast-track dispute resolution mechanism in case of disagreement between the parties will further ensure the commitments’ effective implementation.
“Broadcom holds a very strong position in the market for the supply of certain hardware components,” noted Margrethe Vestager, Executive Vice-President in charge of competition policy. “VMware is a key server virtualisation software provider. By acquiring VMware, Broadcom could restrict or degrade interoperability between VMware’s leading server virtualisation software and some competing hardware components. But the commitments offered by Broadcom will enable its only rival, Marvell, to continue competing on equal footing and ensure a similar protection for any future entrants,” she stated.
Broadcom said the decision recognises the importance of this combination in enabling enterprises to accelerate growth and momentum in the multi-cloud ecosystem, and in expanding customer choice and creating more potential for increased innovation and competition.
Broadcom has also received legal merger clearance in Australia, Brazil, Canada, South Africa, and Taiwan, and foreign investment control clearance in all necessary jurisdictions.
“While Broadcom believes that its proposed acquisition of VMware will only increase competition and innovation in cloud computing, Broadcom provided the European Commission with a technology access remedy that preserves interoperability, a core principle that would not have changed as a result of this transaction,” said the company. Broadcom did this to fully address the concerns expressed by the European Commission, and Broadcom welcomes the Commission’s decision to accept this access remedy.”
“Broadcom looks forward to continuing to work constructively with regulators around the world. Broadcom is confident that when regulators conclude their review, they too will see that the combination of Broadcom and VMware will enhance competition in the cloud and benefit enterprise customers by giving them more choice and control over where they locate their workloads. Broadcom continues to expect that the transaction will close in its fiscal year 2023.”