Will regulators block Broadcom’s acquisition of VMware?
When Broadcom announced its planned US$61 million acquisition of VMware in May 2022, the news sent shockwaves across the tech industry. While some felt the acquisition made no sense, given that both companies are focused on two different areas, many saw this as an opportunity for Broadcom to establish itself as a bigger tech player and compete with the other tech giants.
Tech Wire Asia caught up with some tech executives in recent months to get their views on the deal. While they also felt that the deal will most likely go through, they did have some concerns with how Broadcom could end up running VMware.
A former employee of VMware mentioned that the mood in the company was not as it would normally be, with many employees unsure if their careers will be impacted post-acquisition. In Southeast Asia, several country managers and executives have also left VMware and moved to other tech companies.
A competitor to VMware also recently mentioned that they have been receiving increasing inquiries from enterprises on their solutions since the acquisition was announced. Most of these enterprises were concerned if their solutions and relationship with VMware would be impacted following the Broadcom acquisition.
Prior to the acquisition, Broadcom had already acquired several other tech companies over the years. However, most of these companies weren’t in a profitable state compared to VMware. For example, Symantec and CA Technologies were two companies Broadcom acquired in the past. Both acquisitions ended up having their employees laid off and the company restructured, but have not been as profitable as expected.
On the other hand, VMware continues to show positive results in its operations. In fact, Dell Technologies, which previously owned VMware, completed the spin-off of its 81% equity ownership of the company in November 2021. Both companies still retain a strong and unique commercial agreement that preserves the most valuable parts of the companies’ relationship, such as the co-development of critical solutions and alignment on sales and marketing activities, while allowing strategic flexibility.
Broadcom invests in VMware
During VMware Explore last year, Raghu Raghuram, VMware CEO announced that the deal is expected to close during Broadcom’s 2023 fiscal year. Hock Tan, President and CEO of Broadcom also attended the event last year, in what was reported as a move to understand the company a lot more.
Tan has been pretty vocal about the company in recent months. In a recent blog post, he stated that Broadcom plans to invest an incremental US$2 billion a year to better unlock customer value, with half focused on R&D and the other half focused on helping to accelerate the deployment of VMware solutions through VMware and partner professional services.
Tan explained that these new investments are part of Broadcom’s plan to significantly increase R&D investment in VMware products.
“If companies can run VMware as a private cloud on-prem, they should be able to take their same application workloads to the public cloud without needing to re-engineer that application or worry about being locked into the public cloud providers that they choose.
By extending our multi-cloud strategy, we will invest in extending VMware’s software stack to run and manage workloads across private and public clouds, which means any enterprise can run application workloads easily, securely, and seamlessly on-prem, or in any cloud platform they prefer.
Our goal will be to achieve this multi-cloud strategy in a way that is cost-neutral to customers while allowing them to choose where they want to run applications or workloads. That’s what this is all about – ensuring customer choice and flexibility in managing their data and workloads,” explained Tan.
VMware acquisition hanging by a thread?
Here’s where it gets interesting though. UK regulators recently pulled the plug on Microsoft’s planned acquisition of Activision, citing concerns over competition in the industry. The deal, which would have been Microsoft’s biggest acquisition, is now a warning sign to Broadcom’s acquisition of VMware as well.
According to a report by Reuters, Broadcom is aware of how regulators are becoming increasingly concerned over mergers and acquisitions. As such, Tan and his executives are hoping to convince EU antitrust enforces that the proposed US$61 billion acquisition is pro-competitive.
Sumit Dhawan, VMware President is also expected to appear remotely at the hearing. The EU deadline for the decision is on June 21st, which will be extended once concessions are submitted.
The UK’s Competition and Markets Authority, which blocked the Microsoft acquisition, is also looking into the planned acquisition. In the US, the Federal Trade Commission has been seeking information about the deal from the companies, citing a previous regulatory filing.
In an interview with the Wall Street Journal in April this year, Raghuram commented that regulators are proceeding on the timeline they anticipated and are on track to complete the transaction by the of Broadcom’s fiscal year.
“We are confident this acquisition will close in the timeline we talked about,” said Raghuram.
Whether the deal will go through or not, both companies seem confident about their meetings with the regulators. However, that may not be the case for some VMware customers.
As with any acquisition, there will always be uncertainties. However, VMware continues to highlight to its customers that its operations will not be impacted by the acquisition and that it will still continue to run as an independent company.
As Tan puts it, “My philosophy is that if you do what you do well and keep focusing on doing these things better – as a market leader, a product leader, or a technology leader – you will become the best in your space. Broadcom’s business model is based on the thesis that the technology we develop is a roadmap, is evolutionary, and gets better with time.
The wider technology industry, as well as customers, will only stand to benefit from Broadcom unlocking VMware’s potential by helping it build on its strengths and ambitions.”
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