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Broadcom’s VMware Acquisition to Face 4 Months of EU Scrutiny

Meanwhile, the chipmaker appears to have gotten deal approvals from Brazil, Canada and South Africa.

Kelly Teal

December 12, 2022

4 Min Read
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Broadcom’s pending VMware acquisition has hit a temporary snag.

The European Commission, the competition branch of the European Union, will indeed launch a full-scale antitrust investigation into the $61 billion deal, Reuters reports.

It’s a delay Broadcom was working to avoid. Broadcom had hoped regulators would give the company an early thumbs-up for the VMware acquisition based on the dominating presence of Amazon Web Services, Microsoft Azure and Google Cloud in Europe. The company said it would offer a competitive option to those firms. (Broadcom, historically a chipmaker, is broadening its strategy to include cloud computing via VMware.)

Those hopes appear to be dashed.

Keep up with the latest channel-impacting mergers and acquisitions in our M&A roundup.

According to Reuters, Broadcom met with European Commission officials last week in a “state of play” meeting. That’s the time when EU officials share their concerns about corporate takeovers; then, the companies have the chance to assuage those worries.

VMware Acquisition Regulation

It seems Broadcom didn’t quite quash regulators’ fears. As such, sources close to the matter told Reuters that a four-month-long investigation will take place. That’s exactly what Broadcom was trying to circumvent. The preliminary reviews of Broadcom’s VMware acquisition are scheduled to end next week, on Dec. 20.

By extending matters another several months, European Commission members seem to be responding to apprehension expressed by end users, as well as industry and IT trade associations including Belgium’s Beltug, France’s Cigref and Germany’s Voice. They have all said they fear Broadcom will raise prices and make it harder for customers to move off VMware platforms, in terms of both money and time.

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Broadcom’s Hock Tan

Hock Tan, Broadcom’s CEO, has addressed the pricing issue in two blogs so far.

“Following the close of the transaction, we will invest in and innovate VMware’s products so we can sell even more of them and grow the VMware business within enterprises, deepening and expanding the footprint instead of potentially raising prices,” Tan wrote in late November.

On Oct. 26, he stated that Broadcom’s methodology “was not based on taking existing products and raising their prices.”

Tan: ’We Are Making Progress’

Conversely, Tan has not said much about whether Broadcom will make switching from VMware a difficult process. However, the European Commission has given a small hint around what it might see as potential for compromise. On Dec. 7, Margrethe Vestager, the agency’s executive vice president, spoke at the Organization for Economic Cooperation and Development’s Global Forum on Competition. Vestager, the Commissioner for Competition, briefly alluded to some concessions Broadcom already has made in Europe.

“In October, we accepted commitments from Broadcom, which makes chips for modems and TV set-top boxes,” Vestager said. “Broadcom committed to stop enforcing contract terms that tie its customers to exclusive deals.”

With that precedent set, it’s fair to speculate that Broadcom would have to make similar promises regarding the VMware acquisition.

Observers will get more information as EU regulators wrap up the preliminary review and move into a four-month investigation surrounding the VMware acquisition. Even so, Tan told financial analysts during Broadcom’s latest earnings call last week that he remains upbeat about closing the VMware deal in 2023.

Making Progress

“We are making progress with our various regulatory filings around the world, as we very much expect having received merger clearance in Brazil, Canada and South Africa,” Tan said on Dec. 8, according to a transcript from The Motley Fool. “We anticipate that timeline for the review process would be more extended in other key regions, especially given the size of this transaction. Having said that, we’re still confident that this transaction will close and be completed in our fiscal 2023.”

Broadcom’s fiscal year 2023 kicked off in November.

After all, Tan added, “[t]he combination of Broadcom and VMware is about enabling enterprises to accelerate innovation and expand choice by addressing their most complex technology challenges in this multicloud era. And we are confident that regulators will see this when they conclude their review.”

Reuters noted that the European Commission has not yet commented on the pending investigation. Broadcom’s prospective VMware acquisition marks the second-largest of 2022, followed only by Microsoft’s takeover of Activision Blizzard, valued at $70 billion.

Want to contact the author directly about this story? Have ideas for a follow-up article? Email Kelly Teal or connect with her on LinkedIn.

 

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About the Author(s)

Kelly Teal

Contributing Editor, Channel Futures

Kelly Teal has more than 20 years’ experience as a journalist, editor and analyst, with longtime expertise in the indirect channel. She worked on the Channel Partners magazine staff for 11 years. Kelly now is principal of Kreativ Energy LLC.

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