EU Opens On-Depth Investigation Into Proposed Acquisition of VMware by Broadcom

The European Commission has opened an in-depth investigation to assess, under the EU Merger Regulation, the proposed acquisition of VMware, Inc. by Broadcom, Inc.

It is particularly concerned that the transaction would allow Broadcom to restrict competition in the market for certain hardware components which interoperate with VMware’s software.

Broadcom is a hardware company that offers, among other products, NICs, FC HBAs and storage adapters. It recently started expanding into software markets.

VMware is a software provider offering mainly virtualisation software which interoperates with a range of hardware, including NICs, FC HBAs and storage adapters.

The companies’ portfolios are largely complementary.

The Commission’s preliminary investigation indicates that the transaction may allow Broadcom to restrict competition in the market for the supply of NICs, FC HBAs and storage adapters by:
i degrading interoperability between VMware’s server virtualisation software and competitors’ hardware to the benefit of its own hardware, and/or
ii foreclosing competitors’ hardware by preventing them from using VMware’s server virtualisation software or degrading their access to it.

This, in turn, could lead to higher prices, lower quality and less innovation for business customers, and ultimately consumers.

In addition, the Commission will also examine whether:
• Broadcom may hinder the development of SmartNICs by other providers. In 2020, VMware launched Project Monterey with three SmartNICs sellers (NVIDIA, Intel and AMD Pensando). Broadcom may decrease VMware’s involvement in Project Monterey to protect its own NICs revenues. This could hamper innovation to the detriment of customers.
• Broadcom may start bundling VMware’s virtualisation software with its own software (namely mainframe and security software) and no longer offer VMware’s virtualisation software as a stand-alone product reducing choice and potentially foreclosing rival software providers.

The proposed transaction was notified to the Commission on November 15, 2022. The Commission now has 90 working days, until May 11, 2023, to take a decision. The opening of an in-depth inquiry does not prejudge the final result of the investigation.

“Broadcom, a major supplier of hardware components, is acquiring VMware, a key server virtualisation software provider. Our initial investigation has shown that it is essential for hardware components in servers to interoperate with VMware’s software. We are concerned that after the merger, Broadcom could prevent its hardware rivals to interoperate with VMware’s server virtualisation software. This would lead to higher prices, lower quality and less innovation for customers and consumers,” said Margrethe Vestager, EVP in charge of competition policy.