Mergers: Commission sends Broadcom Statement of Objections over proposed acquisition of VMware

This article is brought to you in association with the European Commission.

The European Commission has informed Broadcom of its preliminary view that its proposed acquisition of VMware may restrict competition in the market for certain hardware components which interoperate with VMware’s virtualisation software.

Broadcom is a hardware company that offers, among other products, Network Interface Cards (‘NICs’), Fibre Channel Host-Bus Adapters (‘FC HBAs’) and storage adapters. Broadcom is the leading supplier of such products worldwide. It has recently started expanding into software markets, mainly for security and mainframe applications. VMware is the global leading supplier of server virtualisation software in the on-premises and private cloud environments which interoperates with a wide range of hardware, including FC HBAs and storage adapters. The companies’ portfolios are largely complementary.

The Statement of Objections

In December 2022, the Commission opened an in-depth investigation to assess if Broadcom’s acquisition of VMware may restrict competition in the market for the supply of NICs, FC HBAs and storage adapters. In addition, the Commission had concerns that Broadcom may: (i) hinder the development of SmartNICs by other providers, and (ii) start bundling VMware’s virtualisation software with its own software and no longer offer VMware’s virtualisation software as a stand-alone product.

The Commission has conducted a wide-ranging investigation to understand the market and the potential impact of the deal. This investigation has included, among others, analysing internal documents provided by the parties and gathering views from server users and manufacturers, as well as from virtualisation software suppliers.

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.

Broadcom is the leading supplier of FC HBAs and storage adapters. The markets are very concentrated. 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.

Companies and products

Broadcom is a US based hardware company active in the production of NICs, FC HBAs and storage adapters, amongst other products. NICs are server components that provide an interface between the server and other computers and equipment on a network. FC HBAs are storage adapters that connect servers to storage located outside the server on a storage-area network using the fiber channel protocol, typically through a switch. Storage adapters connect servers’ central processing units to storage directly.

VMware is a US based software company that mainly offers virtualization software, whichenables IT operators to create virtual versions of computer resources (e.g. hardware, operating systems, storage devices, or network resources) known as virtual machines. This enables IT organizations to run more than one virtual system – and multiple OS and applications – on a single server at the same time.

Background

A Statement of Objections is a formal step in an investigation, where the Commission informs the companies concerned in writing of the objections raised against them. The sending of a Statement of Objections does not prejudge the outcome of the investigation. Broadcom now has the opportunity to reply to the Commission’s Statement of Objections, to consult the Commission’s case file and to request an oral hearing.

The transaction was notified to the Commission on 15 November 2022. The Commission opened an in-depth investigation on 20 December 2022 and now has until 21 June 2023 to take a final decision.

The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the European Economic Area or any substantial part of it.

As part of a general effort to increase transparency and enhance our communications on the most complex investigations, the Commission has taken the decision to start publishing press releases upon the issuance of a Statement of Objections in Phase II merger proceedings. The Commission believes issuing a press release at this stage in a Phase II procedure provides added value, and clarifies the status of the case to the public.

The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).

In addition to the current transaction, there are currently eight on-going Phase II merger investigations: (i) the proposed acquisition of OMV Slovenija by MOL; (ii) the proposed acquisition of Alumetal by Hydro; (iii) the proposed acquisition of Activision Blizzard by Microsoft; (iv) the proposed acquisition of eTraveli by Booking; (v) the proposed acquisition of Lagardère by Vivendi, (vi) the proposed acquisition of Inmarsat by Viasat; (vii) the proposed acquisition of Asiana by Korean Air; and (viii) the proposed  the proposed transaction Orange and Masmovil.

More information will be available on the Commission’s competition website, in the Commission’s public case register under the case number M.10806.