United Kingdom regulators gave a provisional stamp of approval to Broadcom’s pending $69 billion acquisition of VMware, which continues to gain momentum toward an increasingly likely closing. However, analysts remain concerned on the long-term ramifications of the proposed deal.

The U.K.’s Competition and Markets Authority (CMA) regulator this week stated the deal “would not substantially reduce competition in the supply of server hardware components in the U.K.”

“The panel explored concerns that the deal could harm the ability of Broadcom’s rivals to compete if the merged company were to make their products work less well (or not at all) with VMware’s server virtualization software,” the government regulator noted in its approval. “However, it has provisionally found that the potential financial benefit to Broadcom and VMware of making rival products work less well with VMware’s software would not outweigh the potential financial cost in terms of lost business.”

The CMA also stated that it did not think the deal would harm market innovation, “in particular since information about new product adaptations only needs to be shared with VMware at a stage when it is too late to be of commercial benefit to Broadcom.”

The U.K. regulator earlier this year initiated an advanced review phase on the deal. That move came after Broadcom informed the CMA that it would not be providing any “undertakings” following the completion of the initial review process.

The CMA in its provisional approval did state it would now “consult on the findings” toward reaching a final decision but did not mention that it had received any concessions from Broadcom or VMware on the deal.

Broadcom has the EU in hand, US FTC still looking

The U.K. provisional approval comes a week after the European Commission (EC) signed off on the deal.

That regulator noted it had gained concessions from Broadcom following an “in-depth investigation.” That investigation centered around concerns the deal “would harm competition in the worldwide market for the supply of [fiber channel host-bus adapters],” with a particular focus on Broadcom being able “to foreclose Marvell, the only rival on the market for the supply of FC HBAs, by restricting or degrading the interoperability between VMware’s server virtualization software and Marvell’s hardware.”

“This would hamper Marvell’s ability to compete in a market where Broadcom is dominant, or at least holds a very strong position, ultimately leading to higher prices, lower quality and less innovation for business customers,” the EC said.

In response, Broadcom offered to guarantee access to its APIs and technical support for the development and certification of third-party FC HBAs, including access via an open-source license to the source code for all of Broadcom’s current and future FC HBA drivers; interoperability with VMware server virtualization software; and providing third parties access to this information at the same time that Broadcom gains access.

Broadcom will also provide organizational separation between its FC HBA team and the team in charge of third-party certification and support. This will help ensure protection of confidential information from third-party vendors like Marvell.

“While Broadcom believes that its proposed acquisition of VMware will only increase competition and innovation in cloud computing, Broadcom provided the European Commission with a technology access remedy that preserves interoperability, a core principle that would not have changed as a result of this transaction,” Broadcom noted in a statement. “Broadcom did this to fully address the concerns expressed by the European Commission, and Broadcom welcomes the commission’s decision to accept this access remedy.”

Broadcom also noted it has “received legal merger clearance in Australia, Brazil, Canada, South Africa and Taiwan, and foreign investment control clearance in all necessary jurisdictions,” and that it continues to expect the deal to close by the end of its current fiscal year, which ends October 31.

Broadcom and VMware’s boards have signed off on the controversial deal, with its biggest remaining regulatory hurdle coming from the U.S. Federal Trade Commission (FTC), which has reportedly been mulling over the same anti-competitive concerns expressed by the EC.

VMware Tanzu, Carbon Black could be vulnerable

Tracy Woo, senior analyst at Forrester Research, said in an interview with SDxCentral that the latest approvals lead to significant momentum for the deal.

“They had wanted to close the deal back in May, and because of the amount of review that was going on from the EU it didn't happen and for a second it looked like it might not,” Woo said. “Since then, they've gotten that approval and I think the momentum around the deal in the market has picked up because now it really looks like it's going to be something that is likely to close.”

Woo had initially expressed concerns over how Broadcom’s control of VMware could impact VMware’s current customers and the company’s ability to continue to innovate, concerns that she continues to express.

“I am still hearing about those concerns from customers,” Woo said. “But, I think the one thing that is really in some ways honorable about them is that they are acknowledging this up front. They have said they are only looking at [just their top customers] based on all of the notes that were released. They're not making any bones about it. They're not stringing customers along saying one thing and doing another. They're doing exactly what they said they’re gonna do and, in some respect, you really have to admire this.”

Some of this is expected to include cuts in research and development on underperforming or fringe services.

“If anything, [Broadcom is] great at getting maximum value in the now, in the present,” Woo said. “They're not interested in long-term, sustainable revenue and profitability. They are interested in profitability now and five years down the road.”

This focus could imperil some of VMware’s internal operations, with Woo pointing toward products like its cloud-native Tanzu platform and its security focused Carbon Black products. She added that VMware has attempted to shield Tanzu through its integration of Tanzu into its Aria multi-cloud management platform, while she has not heard a lot from VMware customers on its Carbon Black service.

“I'm not the security person, but I also don't hear a lot about it either,” Woo said. “It's sort of seen as a tag-on solution, kind of like how Tanzu is.”

VMware platforms that are most likely to survive include its long-standing hyperconverged infrastructure (HCI) systems, its virtual desktop and its cloud management systems.

“Those are areas and tools that they're probably going to be focused on and try to get behind and really try to, at least from a Broadcom perspective, they're going to try to wring out as much profitability as they can with these big, strong performers.”