Broadcom braced for full EU investigation into $61B VMware buyout

Company still insists takeover of virtualization giant is going through by November '23

Broadcom may be facing an in-depth investigation into its $61 billion takeover of VMware by EU competition watchdogs, dashing the corporation's earlier hopes that its buyout would not meet any major regulatory hurdles.

According to reports, a full-scale probe into Broadcom’s planned buy of the cloud and virtualization biz is likely to be announced on December 20, following a state of play meeting between Broadcom and the European Commission last week.

The pair officially notified the European Commission about the proposed takeover in November, when Broadcom was said to be hopeful the purchase would simply be waved through rather than undergoing an in-depth antitrust investigation that might add months to the approvals process and thus delay the completion date.

As The Register reported in October, Broadcom believed it could convince European regulators that its buy would actually create more competition in the cloud market, which is dominated by Microsoft, Amazon, and Google.

It now appears likely the European Commission will initiate a full-scale antitrust investigation into the deal, according to Reuters, which cites anonymous sources "familiar with the matter." The deadline for the antitrust body to complete its review of the acquisition is expected to be sometime in May next year.

If so, this would mean approval would not be granted for an entire year since the acquisition was announced by Broadcom and VMware earlier this year.

The UK government's Competition and Markets Authority (CMA) announced late in November that it was opening a preliminary inquiry into the tie-up. The CMA invited comments on the transaction from any interested party, with a deadline of Dec 6, but has yet to set a deadline for a decision on whether an investigation under the merger provisions of the Enterprise Act 2002 is warranted.

Meanwhile, in the US, a review of the agreement by the Federal Trade Commission is understood to be focusing on "conglomerate effects of the combination," as it believes there are no real overlaps between the business areas the two companies already operate in, except perhaps Endpoint Security.

However, the sale has been dogged by fears among VMware customers that Broadcom would seek to raise the prices it charges following the takeover. The company has had to issue several denials, including one just at the start of this month.

Only last week, Broadcom CEO Hock Tan said on the company's Q4 2022 earnings call that it was making progress with various regulatory filings around the world, having received merger clearance in Brazil, Canada and South Africa.

Tan did issue a note of caution, saying: "We anticipate the timeline for the review process would be more extended in other key regions, especially given the size of this transaction." However, he added that Broadcom is "still confident that this transaction will close and be completed in our fiscal 2023," which started in November.

"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," Tan said.

Broadcom CFO Kirsten Spears confirmed the company's revenue reached $8.9 billion for Q4, up 21 percent over the same period last year. Nearly 80 percent of this was accounted for by Broadcom's semiconductor solutions business, at $7.1 billion, which was up 26 percent on last year. Revenue for the infrastructure software division stood at $1.8 billion, up 4 percent year-on-year.

Broadcom said revenue in the fiscal first quarter would be about $8.9 billion, compared with an average analyst estimate of $8.8 billion, but declined to give full-year guidance for fiscal 2023, citing economic conditions. ®