The U.K.’s antitrust regulator is concerned that Broadcom Inc.’s proposed $61 billion acquisition of VMware Inc. could raise server prices.

The Competition and Markets Authority, or CMA, publicized its position today. The development follows the conclusion of an inquiry into the deal that the CMA launched last November.

“We are concerned this deal could allow Broadcom to cut out competitors from the supply of hardware components to the server market and lead to less innovation at a time when most firms want fast, responsive, and affordable IT systems,” said CMA Executive Director David Stewart. “It’s now up to Broadcom to respond to our concerns or face a more in-depth investigation.”

Broadcom is a major supplier of network interface cards, or NICs, chips that are used to connect servers to data center networks. The company also makes storage adapters. Broadcom’s adapters facilitate the movement of data between servers and storage equipment. 

VMware, in turn, sells software for managing data center infrastructure. Companies such as Broadcom that develop NICs and storage adapters make their chips compatible with VMware’s software because it’s widely used in the enterprise.

The CMA is concerned that Broadcom’s proposed acquisition of the company could harm the competition. In particular, the regulator believes Broadcom may prevent rivals from making their NICs and storage adapters compatible with VMware software. That would give the company’s chips an unfair edge. 

Hardware makers actively collaborate with VMware to ensure their products support its software. As part of that collaboration, companies sometimes share sensitive product data with the software maker. This data sharing forms the basis of the second antitrust concern that the CMA has raised over Broadcom’s proposed acquisition.

According to the regulator, the deal may enable Broadcom to obtain sensitive product data that its rivals share with VMware. The CMA argues such a development could reduce innovation in the chip ecosystem. 

Broadcom can submit proposals to address the CMA’s antitrust concerns within five days. If the regulator doesn’t accept the proposals, it may refer the deal to a so-called Phase 2 investigation. Such investigations often take months to complete and can sometimes lead to an acquisition’s cancellation.

“We are working constructively with the CMA as it continues its standard merger review process and are confident we will address any concerns,” Broadcom said in a statement to TechCrunch. “We will demonstrate that the transaction enhances competition and benefits businesses and consumers through increased quality, innovation and choice.”

Broadcom has already received approval for the deal in Australia, Brazil, South Africa and Canada. In the European Union, the acquisition is currently facing an antitrust probe. EU officials are investigating how the deal may impact NIC suppliers that compete with Broadcom.

Broadcom disclosed in February that it expects to close the acquisition by May 26. The $61 billion the company is offering for VMware amounts to $138.23 per share, a 44% premium over the software maker’s last unaffected stock price. Broadcom plans to merge VMware with its software division upon the deal’s completion.

Photo: Broadcom