Broadcom-Brocade merger set to pass EU antitrust review
Wed 10 May 2017
Broadcom’s acquisition of Brocade Technologies has been under review by the European Commission due to concerns that the merger of the two companies may violate European antitrust regulations.
However, Reuters reports that three people familiar with the investigation said that in light of recent concessions from Broadcom, the EU is prepared to approve the merger.
Broadcom, the Singapore-based chipmaker, made a bid to acquire Brocade Technologies for $5.9 billion USD cash in November 2016. Brocade makes data center products including hardware such as switches and routers, as well as software and virtualization components for networking.
Broadcom decided to acquire Brocade in a bid to enhance Broadcom’s enterprise storage solutions offerings for original equipment manufacturer (OEM) clients. Broadcom stated its intention to retain Brocade’s Fiber Channel SAN Switching business, while looking for a buyer to divest itself of Brocade’s IP Networking business.
The European Commission is required to assess mergers and acquisitions for large companies, to prevent resource concentrations that would inhibit competition in the European Economic Area.
The European Commission investigation into the Brocade acquisition highlighted concerns that should the merger go forward without governmental review, client choices and options could be restricted, as Broadcom would then control a large part of the supply chain. Limiting client choices could therefore negatively affect competition in the market.
This week, Broadcom made concessions to the EU antitrust regulators conducting the investigation, stating that clients will be able to use any brand of switch they prefer on their network independent of the supplier. The company also promised that competition would be preserved with the erection of Chinese walls between technical teams working to research, develop and market competing devices.
A May 12 deadline for the Commission to approve or deny the merger is expected to be met with approval, according to sources familiar with the review.
Broadcom faced a similar review by the European Commission when it was acquired by Avago. At the time, Avago and Broadcom were both industry leaders in the semiconductor business. However, upon review, the EU antitrust investigation concluded that even with a merger of the two, the new entity would continue to face effective competition in the semiconductor market.