The European Commission approved Broadcom's acquisition deal of VMware with open access and interoperability conditions. VMware is still waiting for FTC's approval on its way to diversify further into enterprise software.
According to a press release, the European Commission has approved the proposal acquisition of VMware by Broadcom, which is subject to the condition that the chipmaker fully complies with its commitments.
The European Commission said that the transaction would harm competition in the worldwide market for the supply of FC HBAs (Fibre Channel Host-Bus Adapters), and Broadcom would have the ability and incentive to foreclose its only rival, Marvell, in the market by restricting or degrading the interoperability between VMware's server virtualization software and Marvell's hardware.
Therefore, Broadcom agreed to offer guaranteed access to the interoperability Application Programming Interfaces as well as to the materials, tools, and technical support for the development and certification of third-party FC HBAs. Broadcom will also offer guaranteed access to the source code for all of Broadcom's current and future FC HBA drivers through an irrevocable open source license. These commitments will be in place for ten years.
According to Broadcom's statement, the Commission's decision came after legal merger clearances Broadcom received in Australia, Brazil, Canada, South Africa, and Taiwan. Broadcom is waiting for the US FTC and the UK's Competition and Markets Authority to examine the deal.
In May 2022, Broadcom announced the US$61 billion cash-and-stock deal to acquire VMware and secured US$32 billion from a consortium of banks to help fund the deal. Broadcom is looking to diversify its business into enterprise software, and Bloomberg Intelligence analyst Woo Jin Ho said earlier that the deal would help Broadcom to cushion the cyclicality of the chip business, and software may account for nearly half of its sales.
Still, Bloomberg Intelligence analyst Robert Schiffman wrote in a research note that Broadcom's absolute debt might nearly double due to the US$32 billion debt it secured. But he added that to reduce borrowing costs and expedite debt reduction, the elements of debt financing may encompass a significant portion of five-year or shorter bank term loans versus 100% longer-duration public debt.
Source: Bloomberg, July 2023
