The UK Competition & Markets Authority has decided the planned acquisition of VMWare Inc by Broadcom Corporation (NASDAQ:AVGO) could lessen competition within the UK.
The CMA said both companies have until Wednesday next week to offer undertakings that might be accepted by the CMA. If not, the merger will be referred to an in-depth Phase 2 probe.
In May last year, Broadcom, a California-based semiconductor manufacturer, agreed to buy California-based cloud computing company, VMWare in a cash-and-stock transaction valuing VMWare at US$61bn. It also will assume US$8bn of VMWare net debt.
In a statement the competition watchdog said: “The CMA believes that the merger meets the threshold for reference to an in-depth Phase 2 investigation, giving rise to a realistic prospect of a substantial lessening of competition in relation to the supply of various server hardware components.”
In making its decision the CMA considered whether the merged entity could foreclose Broadcom’s hardware competitors and reduce competition in relation to a number of component types by reducing or restricting the interoperability of their hardware with VMware’s server virtualisation software.
It concluded that the merger would mean a realistic prospect of lessened competition in the UK as a result of the foreclosure of hardware competitors in relation to each of the global markets for the supply of Ethernet NICs, FC HBAs, storage adapters, and FC switches.
The move comes after the EU's antitrust regulator launched an in-depth probe into the planned merger of the US companies, explaining that it could lead to higher prices, less innovation for business customers, and lower quality.
In pre-market trading in New York on Wednesday, Broadcom shares were down 0.1% to US$636.75.