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Broadcom acquisition of VMware could be derailed by EU antitrust probe

The $69 billion acquisition of cloud software company VMware by Broadcom is set for a lengthy antitrust investigation in Brussels over regulatory concerns that the deal would hurt competition in the global technology industry.

Broadcom is already in preliminary discussions with EU officials, who will be looking into concerns that the merger could lead to abusive behavior, including potential future price hikes by the US chipmaker, according to three people with direct knowledge of the transaction. he said.

Many large acquisitions receive similar inquiries, known in EU circles as “Phase 1” investigations, which usually take a few months to complete.

But people close to the situation suggest that EU officials plan to move forward with a more detailed “Phase 2” investigation, which could take more than a year and eventually derail the deal altogether. Is. Nvidia eventually walked away from a proposed $66 billion purchase of chip designer Arm after being subjected to a lengthy EU antitrust investigation.

Broadcom did not immediately respond to requests for comment.

The company’s acquisition of VMware is the largest in the history of the technology industry, second only to Microsoft’s proposed $75 billion purchase of game maker Activision Blizzard.

Opponents of the deal, including some existing VMware clients, have written to the EU to argue that VMware customers may be forced to purchase Broadcom services in the future.

They point to two recent transactions led by Broadcom, its $18.9 billion acquisition of CA Technologies in 2018 and its $10.7 billion deal to buy Symantec’s enterprise security business a year later, as recent examples. That’s how the US chipmaker risks undercutting competition. In both deals, he claimed, Broadcom raised prices.

These concerns are being aired to senior EU officials, including competition chief Margrethe Vestager, even though Broadcom is formally in the process of being reviewed by antitrust officials until after the summer break, according to people with knowledge of the process. The acquisition is not likely to be filed for

Further regulatory scrutiny is expected from the US, while the UK and China may still launch investigations.

The chipmaker has already filed a lawsuit against the European Commission for alleged anti-competitive practices. In October 2020, Brussels accepted commitments by the American group to ensure competitiveness in the chipset market for modems.

Broadcom has emerged as one of the world’s biggest chipmakers on a roll-up spree led by Hock Tan, who has been its deal-hungry chief executive officer for more than a decade.

The Malaysian-American executive was barred from further consolidating the semiconductor industry in 2019. The Federal Trade Commission accused Broadcom of being a monopoly in the sector.

The regulatory onslaught prompted Tan to shift his focus to software and cloud services companies, a move aimed at turning Broadcom into a broader tech conglomerate.

Last November, the FTC barred Broadcom from asking customers to buy bundles in sales of semiconductors for Internet equipment, called “exclusivity” or “loyalty” agreements. It also barred Broadcom from “retaliating against customers for doing business with Broadcom’s competitors”.

“Regulators are going to keep a close eye on this” [the VMware deal] Simply because it’s Broadcom and a big tech transaction,” said Andy Lee, a senior analyst at research firm CreditSights.

According to people close to the company, Broadcom will push back on these fears, arguing that since it is not a merger between competitors, it will not increase market power. It would also argue that the deal is unlikely to raise prices or reduce service quality or have any negative impact on innovation.

Broadcom would also reject any comparison to Nvidia’s failed acquisition of Arm, where Nvidia’s competitors relied on a licensing arrangement for Arm’s chips.

But the trade unions, which represent hundreds of companies that are VMware’s customers, including France’s Sigraf, sent a letter to regulators in Brussels this week asking them to take retroactive action to block the deal because of concerns over anti-competitive practices. was asked to do.

Additional reporting by Harriet Agnew in London and Richard Waters in San Francisco.

© 2022 The Financial Times Ltd. All rights reserved. Not to be redistributed, copied or modified in any way.

Listing image by Bloomberg | Getty Images

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