European regulators: Broadcom-VMware merger 'would lead to higher prices, lower quality'

The European Commission has announced an “in depth” investigation of the merger between the two companies

The European Commission has opened an "in depth" investigation of Broadcom's $61 billion purchase of VMware, the agency said Tuesday, citing concerns that Broadcom could turn off rivals' access to the virtualisation all-star once the acquisition deal closes.

With more than 200,000 customers around the world, including the largest corporations and governments, VMware's platform has been built-in to their networks.

"Our initial investigation has shown that it is essential for hardware components in servers to interoperate with VMware's software," said Margrethe Vestager, European Commission executive vice president in charge of competition policy, in a statement.

"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."

This follows the announcement in July by the US Federal Trade Commission that it too was taking a deeper "second request" look at the merger. That investigation has now stretched to more than five months.

In a statement issued through a spokesperson, Broadcom said it was confident that regulators will conclude the deal will "accelerate innovation and expand choice."

The company said it expects the deal to close before Nov. 1, 2023.

"We look forward to continuing our constructive work 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 Brazil, South Africa, and Canada, and foreign investment control clearance in Germany, France, Austria, and Italy," the statement said.

"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."

Broadcom and the European Commission have frequently sparred.

The San Jose, Calif.-based chipmaker is still under a seven-year mandate that allows regulators to inspect its books to ensure it is not carrying out illegal sales practices.

Every acquisition Broadcom has made since 2015 has needed approval from the European Commission, the executive governing body of the European Union.

Each one of Broadcom's acquisitions were investigated and ultimately approved by the commission, starting with the purchase of Broadcom by Avago in 2015, then Broadcom's acquisitions of Brocade, CA Technology, and Symantec Enterprise Security.

In 2019 the commission accused Broadcom of violating antitrust laws by forcing buyers to use a certain percentage of its microprocessors to qualify for steep discounts, driving prices lower to ensure smaller competitors could not compete in the European chip market for modems and set-top cable boxes.

To avoid prosecution, in 2020 Broadcom suspended all such contracts globally, for seven years. To ensure its good behavior, the company must meet with regulators to show proof that it is complying with the agreement.