Broadcom VMware takeover could be derailed by EU antitrust investigation

Broadcom’s $69 billion acquisition of cloud software company VMware is set to be the subject of a lengthy antitrust investigation in Brussels over regulators’ fears that the deal would hurt competition in the global tech industry.

Broadcom is already in preliminary talks with EU officials who will address concerns that the merger could lead to abuse, including potential future price increases from the US chip maker, three people with direct knowledge of the deal said.

Similar interrogations are being conducted for many large acquisitions, known in EU circles as “Phase 1″investigations, which usually take several months.

But those familiar with the situation suggest that EU authorities are planning a more detailed “phase 2″investigation that could take more than a year and could ultimately derail the deal entirely. Nvidia eventually backed down on a proposed $66 billion purchase of chip company Arm, following a lengthy EU antitrust investigation.

Broadcom did not immediately respond to requests for comment.

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

Opponents of the deal, which include some existing VMware customers, wrote to the EU arguing that VMware customers could be linked to buying Broadcom services in the future.

They point to two recent deals by Broadcom, the $18.9 billion takeover of CA Technologies in 2018 and the $10.7 billion purchase of Symantec’s enterprise security business, as recent examples of how the American chip maker is at risk of undermining competition. They claimed that Broadcom raised prices in both deals.

Those concerns are being voiced to senior EU officials, including head of competition Margrethe Vestager, although Broadcom is unlikely to formally file with antitrust authorities before the summer break, according to people familiar with the process.

Further regulatory scrutiny is expected to take place in the US, while the UK and China may still launch investigations.

The chip maker has already pursued cases against the European Commission for alleged anti-competitive actions. In October 2020, Brussels committed itself to the American group’s commitment to ensure competition in the modem chipset market.

Broadcom has grown into one of the world’s largest chip makers as a result of a stock winding down led by Hawk Tan, who has been the deal-hungry CEO for more than a decade.

In 2019, a Malaysian-American chief executive was prevented from continuing the consolidation of the semiconductor industry. The Federal Trade Commission accused Broadcom of being a monopoly in the sector.

The regulatory attack has forced Tan to shift his focus to software and cloud service companies, which aims to transform Broadcom into a broader technology conglomerate.

Last November, the FTC banned Broadcom from asking customers to buy bundles, called “exclusivity agreements”or “loyalty agreements,”when selling semiconductors for internet devices. It also banned Broadcom from “taking retaliatory action against customers for doing business with Broadcom’s competitors.”

“Regulators will take a close look at [the VMware deal] just because it’s Broadcom and a big tech deal,”said Andy Lee, senior analyst at research firm CreditSights.

According to people close to the company, Broadcom will allay those concerns by arguing that this is not a merger of competitors and will not increase market power. He will also argue that the deal is unlikely to raise prices or undermine service quality or have any negative impact on innovation.

Broadcom also dismisses any comparisons to Nvidia’s failed acquisition of Arm, where Nvidia’s competitors were dependent on Arm’s chip licensing deals.

But trade associations representing hundreds of VMware client companies, including France’s Cigref, sent a letter to regulators in Brussels this week asking them to take preemptive action and block the deal over anticompetitive concerns.

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