European Union antitrust officials plan to slap Broadcom with a warning for anticompetitive practices they believe could come with Broadcom’s acquisition of VMware.

Reuters reported that the European Commission will lay out a statement of objection to the $61 billion merger in the upcoming weeks. The publication cited people familiar with the matter. The statement of objection will include a list of concerns, which Broadcom will have opportunity to “remedy” the concerns. However, a source told Reuters that they do not foresee an asset sale taking place as a result of the concerns. Broadcom may also ask for a closed hearing with commission officials and lawyers to plead its case.

The company in a statement to Reuters said it still expects the transaction to close in its fiscal year 2023, which ends in October. Sources said the Commission will make a decision by June 7.

Broadcom faced an investigation – and an ensuring statement of objection – from the European Commission in 2019. That resulted in the company making major amendments to key customer contracts.

The European Commission’s current concerns in many ways reflect what VMware customers and partners have already stated about the acquisition. For example, Broadcom CEO Hock Tan has repeatedly assured concerned partners that there won’t be price hikes.

The massive acquisition, which drastically accelerates the chipmaker’s expansion into software, would come with serious implications from the channel. The integration will reportedly focus VMware’s channel more on SMB customer accounts, as Broadcom seeks to focus on 600 large accounts, from which VMware draws about 70% of its recurring revenue.

The European Commission (EC) is part of the European Union (EU).

The Concerns

The European Commission officially announced its investigation into the merger in December. The Commission stated two possible activities Broadcom may undertake to undermine competition.

Margrethe Vestager

First, it could “degrade interoperability” between VMware software and rival hardware.

“We are concerned that after the merger, Broadcom could prevent its hardware rivals to interoperate with VMware’s server virtualisation software,” said Margrethe Vestager, executive vice president of competition policy. “This would lead to higher prices, lower quality and less innovation for customers and consumers.

The Commission also expressed concerned that Broadcom would shut off hardware competitors’ access to VMware’s server virtualization software.

In addition, the Commission pointed to VMware’s Project Monterey, which involves VMware, NVIDIA, Intel and AMD Pensando. Those four companies are collaborating to develop SmartNIC cards. According to the Commission, Broadcom might choose to lessen VMware’s involvement in the project.

Furthermore, Broadcom could exclusively bundle VMware’s virtualization software with existing Broadcom software and eliminate the former as a standalone offering, the Commission said.

EC Activities

Broadcom has been the subject of an investigation and a statement of objection from the European Commission before.

In June 2019, the EC opened a formal antitrust investigation into Broadcom. The commissioner stated suspicion of Broadcom’s contractual restrictions with its TV and modem chipset customers. Four months later the agency ordered Broadcom to end restrictions for six of its main customers that incentivized them to enter into exclusive or quasi-exclusive agreements with Broadcom. The Commission argued that Broadcom was abusing its position as the market leader by promoting “anticompetitive practices.”

A year later, the Commission officially accepted Broadcom’s commitment to suspend those exclusivity-focused agreements.

In the meantime, the European Commission is also investigating business satellite internet provider Viasat’s acquisition of Inmarsat. Specifically, the agency two weeks ago registered concerns that the combination will lessen competition of broad in-flight connectivity services that airlines use. It will make a final decision by June 29.