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Broadcom (NASDAQ:) Inc.’s multi-billion-dollar acquisition of VMware (NYSE:) Inc. has received conditional approval from the Korea Fair Trade Commission (FTC) due to concerns over potential disruption to fair competition. The deal, worth $61 billion, saw the FTC emphasizing VMware’s dominance in the server virtualization software ecosystem and its control over interoperability certifications for parts manufactured by Broadcom’s competitors.
VMware, a prominent player in the software industry according to InvestingPro Tips, has been marked with a high earnings quality, with free cash flow exceeding net income. However, the company has seen a declining trend in earnings per share, and the stock has taken a significant hit over the last week, with a 1-week price total return of -15.64% according to InvestingPro Data.
The FTC, led by Han Ki-jeong, highlighted that the acquisition could potentially obstruct interoperability certifications for parts produced by Broadcom’s competitors or result in application denials from new market entrants. The FTC particularly noted VMware’s supremacy in server virtualization and its control over interoperability certifications.
Broadcom, which holds a substantial 64.5 percent share in the Fibre Channel Host-Bus Adapters (FC HBA) market, has been imposed with obligations to ensure fair competition. FC HBA is hardware inherently connected to server virtualization software.
To mitigate these concerns, the FTC has mandated a 10-year obligation period on Broadcom. During this period, Broadcom is required to ensure interoperability for competitors and startups. In addition, Broadcom must provide FC HBA source codes upon third-party requests.
Broadcom is expected to devise comprehensive compliance strategies within 60 days. These strategies are meant to ensure that the company adheres to the conditions set by the FTC, promoting fair competition in the market following its acquisition of VMware Inc.
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