Broadcom’s $61 Billion VMware Deal Faces In-Depth EU Probe

(Bloomberg) -- Broadcom Inc.’s proposed $61 billion takeover of cloud-computing company VMware Inc. faces an extended European Union review, after EU regulators warned that the deal could lead to “higher prices, lower quality and less innovation” for business customers.

EU Scrutinizes Broadcom's VMware Acquisition

Margrethe Vestager, the EU’s antitrust chief, said in a statement on Tuesday that an initial investigation highlighted risks that “after the merger, Broadcom could prevent its hardware rivals to interoperate with VMware’s server virtualisation software.” The EU set a new deadline of May 11 to review the deal, saying that its decision to open an in-depth probe doesn’t prejudge the final result of the investigation.

Broadcom last month formally sought EU approval for the deal after months of preliminary discussions with the European Commission’s merger team. The transaction marks the biggest-ever takeover for a semiconductor maker and extends an acquisition spree for Broadcom Chief Executive Officer Hock Tan, who has built one of the largest and most diversified companies in the industry. 

VMware bolsters Broadcom’s software offerings — a key part of Tan’s strategy in recent years. He acquired corporate-software maker CA Technologies in 2018 and Symantec Corp.’s enterprise security business in 2019.

The deal also risks a review by the UK’s merger watchdog, which last month was calling for comments from interested parties, saying it wanted to see if the acquisition could result in a substantial lessening of competition in the British market.

An in-depth EU review was expected given the size of the deal, according to Bloomberg Intelligence analyst Jennifer Rie.

“Product overlap shouldn’t be an issue,” she said in a note earlier this month. “Reports suggest conglomerate concerns may be the focus of the regulatory review, with VMware’s 79% market share in 2021 and the stickiness of its virtual-server products potentially providing it pricing leverage over customers. We believe VMware could provide pricing guarantees to allay those concerns.”

Background of Broadcom’s Acquisitions

Broadcom’s plan is the second blockbuster tech deal to face tough scrutiny from the EU’s antitrust arm. Microsoft Corp.’s proposed $69 billion takeover of games developer Activision Blizzard Inc. is under investigation after regulators said they’re concerned the software giant could thwart access to blockbuster franchises such as Call of Duty.

“We are making progress with our various regulatory filings around the world, having received legal merger clearance in Brazil, South Africa, and Canada,” Broadcom said in a statement. “We continue to expect the transaction will close in Broadcom’s fiscal year 2023.”

Broadcom’s string of acquisitions has attracted opposition from rivals worried about its increasing reach. That’s led to intense lobbying efforts aimed at scuppering further expansions and investigations and some fines for its product sales strategy. 

The biggest setback Tan received came in 2018 when former President Donald Trump issued an executive order halting his $117 billion attempt to acquire Qualcomm Inc. That marked the end of its expansion in the semiconductor industry and led to his shift to building a software business, which the move for VMWare is part of.