The European Commission has agreed to speed up its review of Broadcom's acquisition of VMware and compliance with competition law. A first decision may be ready before the end of the year.
Both companies say they are confident that the approval from Brussels will help expedite the pending processing in Washington, where they find some misgivings, although objections are known from their competitors. Agreed at a price of 61,000 million dollars, this purchase would be the second most opulent transaction this year: the first place corresponds to Microsoft, willing to pay 69,000 million for the video game specialist Activision, which has been denounced by Sony.
The striking thing about the transaction is that a semiconductor company buys another software company. What synergies justifies the merger of two such different companies? Raghu Raghuram, executive director of this company, taking advantage of his presence at the European conference held in Barcelona earlier this month, answers us.
“Hock Tan [Broadcom CEO] has made it explicit on his blog why he came to the decision to buy VMware. He is not looking for synergies, although it is clear that we both have common clients […] that has not been his motivation in any way. I don't understand what negative impact the change of ownership could have on our market. Broadcom has taken a deep look at VMware's business model and has assured us that the strategy will stick.” It should be so, because the acquirer has agreed to pay multimillion-dollar bonuses to the management team if they were to stay in their positions after the ownership change.
VMware has always been a unique case. After the original independence, it went through two changes of ownership – in 2004 EMC, absorbed by Dell in 2015 – and in each case it obtained guarantees of autonomy, which its clientele appreciates as an identity trait. Raghuram says that status will not change when it becomes the software division of Broadcom, after bringing together other peripheral assets, such as security company Symantec. “The formal difference – he explains – is that until now VMware was a listed company, with its board of directors and its shareholders, something that will stop happening next year”. As of March, VMware had been independent for a few months after parting ways with Dell and a takeover offer was not known to exist. Raghuram spoke of the multicloud offer – which he now prefers to call cross-cloud – whose foundation is the special relationship that VMware has had the ability to sign with the top five cloud service providers.
The expansion of the software catalog this year has coincided with an uncertainty that has not slowed down the growth rate: 9,635 million dollars billed in nine months of 2022, a strong increase in recurring revenues and 820 million net profit.
“Of course we are not immune to macroeconomic factors,” Raghuram admitted, “but inflation affects us like anyone else […] We are not in a recession, although it could come soon. I have memories of recessionary times in the past where our customers have continued to find a value proposition in VMware software.”