AVGO: Broadcom’s Acquisition of VMware Hits Antitrust Hurdle in the UK
- UK competition regulators have said that Broadcom’s proposed acquisition of VMware presents issues.
- The $61bn is also reportedly about to receive a warning from the EU competition watchdog.
- Broadcom remains in strong position, with a 33% share price gain over the past 6 months.
Anti competition seems to be something of a zeitgeist at the moment. Microsoft has come under scrutiny for its proposed $69bn deal to acquire Activision Blizzard and Apple has run into trouble for its developer terms for using its App Store among several other cases. Most recently however, US semiconductor manufacturer Broadcom has run into pushback on its deal to acquire cloud computing company VMware – which could threaten the acquisition's viability.
What happened?
The UK’s Competition and Markets Authority (CMA) have said that the $61bn deal is likely to make servers significantly more expensive, and has said that it will open an inquiry unless its concerns are addressed adequately in 5 working days. The deal, which is part of Broadcom’s strategy to diversify its revenue streams, is also set to receive a warning from EU regulators for the same reason. However Broadcom says it remains confident that any potential concerns will be able to be addressed.
How important is the deal?
For the time being, it doesn’t look as though Broadcom is in any dire need for new revenue streams. Its profit margins have grown every quarter for the past year (with its last reported one at 42%), and its share price has risen by close to 33% over the past 6 months. VMware on the other hand hasn’t been performing quite as well. Its profit margins have been falling annually since 2019, and its share price only logged a 7% gain over the past 6 months. For now, we’ll need to wait and see whether this deal can proceed as planned.