EU Launches In-Depth Investigation into Broadcom's $61 Billion Acquisition of VMware

The European Union has raised concerns about Broadcom Inc.'s proposed $61 billion acquisition of cloud-computing company VMware Inc., warning that it could result in higher prices, lower quality, and less innovation for business customers. As a result, the EU has decided to extend its review of the deal.

On Tuesday, Margrethe Vestager, the European Union's competition commissioner, declared that an initial inquiry had revealed potential issues with Broadcom's proposed merger with VMware. She stated that the merger could potentially impede other hardware companies from being able to use VMware's server virtualisation software. The EU has set a new deadline of May 11 to review the deal, and has made it clear that the decision to launch a more thorough investigation does not indicate the outcome of the probe.

In the previous month, Broadcom officially requested approval from the European Union for the transaction. This is the largest acquisition ever made by a semiconductor manufacturer and is part of a series of purchases made by Broadcom CEO Hock Tan. Tan has created one of the most expansive and varied companies in the industry.

VMware has been a major addition to Broadcom's software portfolio, which is a key element of Tan's plan in recent years. In 2018, he purchased the corporate-software company CA Technologies and in 2019, he acquired Symantec Corporation's enterprise security division.

The agreement could be subject to review by the UK's merger regulator, which recently requested feedback from those involved, to determine if the acquisition could lead to a significant decrease in competition in the British market.

Given the magnitude of the transaction, a comprehensive review by the European Union was anticipated, as per Jennifer Rie, an analyst from Bloomberg Intelligence.

She stated in a note earlier this month that product overlap should not be a problem. Reports indicate that the regulatory review may be centered around conglomerate worries, with VMware's 79% market share in 2021 and the stickiness of its virtual-server products possibly giving it pricing power over customers. We think that VMware could offer pricing assurances to ease those worries.

Broadcom announced that they have achieved legal merger clearance in Brazil, South Africa, and Canada, and are making progress with their regulatory filings in other countries. They anticipate that the transaction will be completed in their fiscal year 2023.

Broadcom's numerous purchases have caused concern among its competitors, who are anxious about its growing influence. This has led to vigorous lobbying attempts to prevent further growth and investigations, as well as some penalties for its product sales approach.

In 2018, Tan encountered a major obstacle when former President Donald Trump issued an executive order to prevent his $117 billion bid to purchase Qualcomm Inc. This put an end to his plans to expand in the semiconductor industry, and he subsequently shifted his focus to constructing a software business, which the acquisition of VMWare is a part of.