Broadcom's $61bn VMware merger up in the air as EU Commission casts doubt

The European watchdog is concerned Broadcom may restrict competition

The European Commission is worried Broadcom's proposed $61bn merger with VMware may thwart competition.

The regulator opened an in-depth investigation at the end of last year to assess the impact the acquisition may have on competition in the market for the supply of NICs, FC HBAs and storage adapters.

Following its inspection to better understand the market and the deal's potential effect - which included analysing internal documents provided by the parties and gathering views from server users and manufacturers, as well as from virtualisation software supplier - the Commission has some reservations.

"As a result of this in-depth investigation, the Commission is concerned that Broadcom may restrict competition in the global markets for the supply of FC HBAs and storage adapters by foreclosing competitors' hardware by delaying or degrading their access to VMware's server virtualisation software," the watchdog said in a statement.

"Broadcom is the leading supplier of FC HBAs and storage adapters. The markets are very concentrated.

"If the competitors of Broadcom are hampered in their ability to compete in these markets, this could in turn lead to higher prices, lower quality and less innovation for business customers, and ultimately consumers."

The regulator also voiced concerns that Broadcom may hinder the development of SmartNICs by other providers, and start bundling VMware's virtualisation software with its own software and no longer offer VMware's virtualisation software as a stand-alone product.

A Broadcom spokesperson told CRN: "We remain confident that this deal does not present any competition issues and continue to work constructively with the European Commission as part of their thorough review process.

"We are making progress with our various regulatory filings around the world, having received legal merger clearance in Australia, Brazil, Canada and South Africa, and foreign investment control clearance in Austria, Denmark, France, Germany, Italy, New Zealand and the UK.

"We expect the transaction will close in Broadcom's fiscal year 2023. The combination of Broadcom and VMware is about enabling enterprises to accelerate innovation and expand choice by addressing their most complex technology challenges in this multi-cloud era, and we are confident that regulators will see this when they conclude their review."

VMware told CRN:

"Broadcom's acquisition of VMware continues to move forward, including the regulatory review process taking place in the EU and across multiple other jurisdictions.

"More broadly, VMware will continue to respond to regulatory inquiries, as appropriate, and we continue to expect the deal to close in Broadcom's fiscal year 2023."

Broadcom's acquisition of VMware - a timeline

The US chipmaker proposed a deal to merge with cloud computing company VMware in May 2022 for a blockbuster amount of $61bn.

After both parties reached an agreement on the deal, Broadcom CEO Hock Tan said:

"Building upon our proven track record of successful M&A, this transaction combines our leading semiconductor and infrastructure software businesses with an iconic pioneer and innovator in enterprise software as we reimagine what we can deliver to customers as a leading infrastructure technology company."

VMware shareholders also v oted to approve the pending merger in November, cementing a critical step that moved the deal closer to the finish line.

But in the months to follow the landmark deal started to face scrutiny.

CRN surveyed the partners on the merger who expressed mixed feelings over the deal, prior to its confirmation.

Former XMA CRO, Andy Wright said an agreement would be "interesting" but was not sure how it would impact the UK channel.

While Wanstor CTO Richard Kuczma felt the company looking to acquire VMware was "bad news" for VMware customers, believing there could be "less investment in R&D going forward".

Before the EU Commission stepped in to probe the merger, the UK's Competition Markets Authority announced an investigation into whether the deal will dull competition in the market.

The CMA said recently it is moving forward with a ‘phase two' investigation after Broadcom refused to provide undertakings of the deal requested by the watchdog during phase one of the investigation.

Although, Dell Technologies CEO Michael Dell recently told CRN he is "confident" the deal between the duo will survive its trip through regulators at home and abroad and ultimately be completed.