Tech News Broadcom will pay $61 billion to become the latest company to acquire VMware

silversurfer

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Chipmaker Broadcom will be acquiring VMware for $61 billion in cash and stock, the companies announced today.

Broadcom is best known for designing and selling a wide range of wired and wireless communication chips, including Wi-Fi and Bluetooth chips and the processors that power many routers and modems. But the company has spent billions in recent years to acquire an enterprise software portfolio$18.9 billion for CA Technologies in 2018 and $10.7 billion for Symantec in 2019. The VMware buy is much larger than either of those purchases, but it fits the pattern of Broadcom's other software acquisitions.

Once the acquisition is completed, the Broadcom Software Group will adopt the VMware name. If approved, Broadcom expects the transaction to be complete in 2023.

This wouldn't be the first time someone paid a lot of money for VMware. EMC first purchased the company back in 2004 for $625 million (or just under $1 billion, adjusted for inflation). EMC itself was acquired by Dell for $67 billion in late 2015, and VMware was part of that acquisition. Dell sold many of its shares of VMware in late 2021 to help pay off debts, though Michael Dell continues to own about 40 percent of VMware's stock and remains the chairman of VMware's board.
 

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Broadcom announced last week that it was seeking to drop $61 billion in cash and stock to acquire VMware. We still don't know exactly what changes Broadcom plans to make to VMware's products or business model once the acquisition completes. Still, Broadcom Software Group President Tom Krause made it clear in Broadcom's earnings call last week: an emphasis on software subscriptions.

As reported by The Register, Broadcom plans a "rapid transition from perpetual licenses to subscriptions" for VMware's products, replacing discrete buy-once-use-forever versions, though "rapid" in this case will still apparently take several years. Broadcom CEO Hock Tan said that the company wants to keep VMware's current customers happy and take advantage of VMware's existing sales team and relationships.
 

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Broadcom takeover of VMware could be derailed by EU antitrust probe​

Broadcom’s $69 billion acquisition of cloud software company VMware is set for a lengthy antitrust investigation in Brussels over regulatory concerns that the deal will harm competition across the global technology industry.

Broadcom is already in preliminary discussions with EU officials who will be looking into worries that the merger may lead to abusive behavior, including potential future price rises by the US chipmaker, three people with direct knowledge of the transaction said.

Many large acquisitions receive similar interrogation, known in EU circles as a “phase 1” investigation, which typically takes a few months to complete.

But those close to the situation suggest that EU authorities plan to push forward with a more detailed “phase 2” investigation, which could take well over a year and may ultimately derail the deal altogether. Nvidia eventually walked away from a proposed $66 billion purchase of chip designer Arm after being subject to a lengthy EU antitrust probe.

Broadcom did not immediately respond to requests for comment.
 

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The United Kingdom's Competition and Markets Authority has opened a preliminary probe into Broadcom's planned acquisition of VMware.

A Monday announcement by the Authority states the probe will consider whether the transaction represents a "relevant merger situation" under the terms of the Enterprise Act of 2002 and, if so, "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 Act offers a two-pronged test to identify a "relevant merger situation":
  • The value of the turnover in the UK of the enterprise being taken over exceeds £70 million (the "turnover test"); or
  • The merger would result in the creation or enhancement of at least a 25 percent share of supply of goods or services in the UK, or in a substantial part of the UK (the "share of supply" test).
A combined VMware and Broadcom almost certainly meets both thresholds with the virtualization giant's core private cloud stack alone. The Authority's call for input from interested parties therefore seems to be an opportunity for discussion of whether the deal will harm markets.
As other regulators have considered the deal, Broadcom has run the argument that VMware's multi-cloud management tools improve 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 represented as a nastier market concentration – although, again, alternatives are not hard to find.
 

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