EU warns Broadcom-VMware deal could hurt competition

The European Commission has become the latest jurisdiction to raise concerns about the $61 billion mega-merger between Broadcom and VMware.

On Wednesday it sent a statement of objections to Broadcom explaining that it believes the deal has the potential to harm competition in the market for server hardware that works with VMware’s virtualisation software. The development comes three weeks after the UK’s Competition and Markets Authority (CMA) aired similar concerns.

The EU has been investigating the deal since December, and notes that the two companies’ product portfolios are largely complementary. It describes Broadcom as the leading supplier of various network components, including – but not limited to – fibre channel host bus adapters (FC HBAs), and storage adapters. The Commission said VMware’s server virtualisation software interoperates with a wide range of hardware, highlighting in particular FC HBAs and storage adapters.

“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 Commission said in a statement.

“Broadcom is the leading supplier of FC HBAs and storage adapters. The markets are very concentrated,” it continued. “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 EU’s issues seem to be broadly in line with the CMA’s. However, the latter also seems to be concerned that through the acquisition, Broadcom might be able to access to commercially-sensitive information that rival hardware makers provide to VMware, including details of upcoming products.

The Commission has invited Broadcom to respond to its objections; a final decision on whether to approve the merger is due by 21 June.

In addition to the concerns raised in Europe, the US Federal Trade Commission (FTC) is also understood to be wary of letting the deal go through.

Last July, a day after receiving formal notification from Broadcom about the acquisition, the FTC asked for additional information about the tie-up, known as a ‘second request’.

In February of this year, a Capital Forum report cited unnamed sources who claimed that FTC lawyers were asking Broadcom’s rivals whether they would be willing to publicly oppose the deal by signing declarations or participating in investigative hearings. One of the FTC’s primary concerns is said to be whether Broadcom’s competitors would still be able to make equipment that works as well with VMware products if the merger takes place.

It will be interesting to see if Broadcom can offer any concessions that will simultaneously appease the various authorities’ concerns while still giving it the advantages it hopes to gain by splurging $61 billion on VMware. But as the objections mount up, that is beginning to look increasingly unlikely.

Get the latest news straight to your inbox. Register for the Telecoms.com newsletter here.