Broadcom takeover of VMware could be derailed by EU antitrust probe

Broadcom’s $69 billion acquisition of cloud software company VMware is set for a lengthy antitrust investigation in Brussels over regulatory concerns that the deal will harm competition across the global technology industry.

 

Broadcom is already in preliminary discussions with EU officials who will be looking into worries that the merger may lead to abusive behavior, including potential future price rises by the US chipmaker, three people with direct knowledge of the transaction said.

 

Many large acquisitions receive similar interrogation, known in EU circles as a “phase 1” investigation, which typically takes a few months to complete.

 

But those close to the situation suggest that EU authorities plan to push forward with a more detailed “phase 2” investigation, which could take well over a year and may ultimately derail the deal altogether. Nvidia eventually walked away from a proposed $66 billion purchase of chip designer Arm after being subject to a lengthy EU antitrust probe.

 

Broadcom did not immediately respond to requests for comment.

 

The company’s acquisition of VMware is among the largest in the history of the technology industry, second only to Microsoft’s proposed $75 billion purchase of games maker Activision Blizzard.

 

Opponents of the deal, which include some existing VMware clients, have written to the EU to argue VMware’s customers could in the future be tied into buying Broadcom services.

 

They point to two recent transactions led by Broadcom, its $18.9 billion takeover of CA Technologies in 2018 and its $10.7 billion deal to buy Symantec’s enterprise security business a year later as recent examples of how the US chipmaker risks undermining competition. In both deals, they claimed, Broadcom raised prices.

 

These concerns are being aired before senior EU officials, including competition chief Margrethe Vestager, even though Broadcom is unlikely to formally file the acquisition for review by antitrust authorities until after the summer break, according to people with knowledge of the process.

 

Further regulatory scrutiny is expected to come from the US, while the UK and China could still launch probes.

 

The chipmaker has already fought cases against the European Commission for alleged anti-competitive practices. In October 2020, Brussels accepted commitments by the US group to ensure competition in the chipset market for modems.

 

Broadcom has emerged as one of the largest chipmakers in the world on the back of a roll-up spree led by Hock Tan, its deal-hungry chief executive for more than a decade.

 

The Malaysian-American executive was blocked from further consolidating the semiconductor industry in 2019. The Federal Trade Commission accused Broadcom of being a monopolist in the sector.

 

The regulatory attack led Tan to shift his buying attention to software and cloud services companies, a move that aims to turn Broadcom into a broader tech conglomerate.

 

Last November, the FTC prohibited Broadcom from asking for customers to buy bundles, called “exclusivity” or “loyalty” agreements, in its sale of semiconductors for Internet devices. It also prohibited Broadcom from “retaliating against customers for doing business with Broadcom’s competitors.”

 

“The regulators are going to take a hard look at [the VMware deal] just because this is Broadcom and a large tech transaction,” said Andy Li, a senior analyst at research firm CreditSights.

 

Broadcom will push back on these fears, according to people close to the company, by arguing that it is not a merger between competitors so will not lead to increased market power. It will also argue the deal is unlikely to raise prices or undermine the quality of the service or have any negative impact on innovation.

 

Broadcom will also dismiss any comparison to Nvidia’s failed acquisition of Arm, where Nvidia’s competitors were dependent on licensing arrangements for Arm’s chips.

 

But trade associations, representing hundreds of companies that are clients of VMware, including France’s Cigref, sent a letter this week to regulators in Brussels asking them to act preemptively to block the deal due to concerns over anti-competitive practices.

 

Additional reporting by Harriet Agnew in London and Richard Waters in San Francisco.