The EU To Investigate $61B Payment

Published on 27 Dec 2022

EU, Investigate, $61B, Payment

When Broadcom revealed in May that it would be paying an unprecedented $61 billion to acquire VMware, it was only a matter of time before the transaction drew the scrutiny of authorities, particularly in Europe and the United Kingdom.

The European Union said it would conduct an official investigation into the transaction last week. EU Vice President for Competition Policy Margrethe Vestager issued a formal statement expressing her concerns that the agreement will have a negative effect on competition:

"Vmware, a foremost vendor of server virtualization software, has been developed by hardware features giant Broadcom. Our preliminary research indicates that it is crucial for server hardware components to be compatible with VMware's software. Our main fear is that Broadcom will make it impossible for competing devices to communicate with VMware's server virtualization platform following the deal. Vestager said in a statement announcing the agreement that it would cause prices to rise, quality to drop, and innovation to slow.

Also Read: Will Programmers Become Extinct As A Result of AI?

Who Is Broadcom?

Broadcom is a semiconductor manufacturer that is paying heavily to acquire the firm. A worthy cause for worry. Keeping VMware unaffiliated seems the wisest option since stifling the demand for the company's services would not be in its best interest (similarly to how IBM and Red Hat operate).

Surely Dell understood this when it purchased the firm in 2015 as part of its $58 billion (officially $67 billion) acquisition of EMC. Before being bought by EMC, VMware was functioning as an independent business. And Dell kept operating the way it had been doing, not restricting VMware's sales to just Dell's hardware products but rather letting it sell to a wide range of clients since Dell realized VMware ran best as an impartial third party.

By 2021, VMware had been separated from Dell as its firm, making Dell more open to purchase offers. We discussed potential buyers for the firm at the time. However, although we knew of Intel, another chip manufacturer, Broadcom was not. We predicted that either an established firm like IBM or Oracle or one of the cloud providers would purchase it. But when the announcement finally came, it was Broadcom, and for a hefty penny.

Will The US Get Involved Too?

This arrangement is being considered by more than just the EU. According to CRN, the U.S. Federal Trade Commission is also investigating the buyout. The U.K.'s Competition and Markets Authority (CMA) also stated last month that it would launch its probe into the transaction.

The scrutiny placed on transactions of this scale is growing, and we have seen the collapse of many significant mergers in recent years due to this kind of research. Due to scrutiny from the Department of Justice, Visa and Plaid called off their acquisition plan for Plaid at the start of 2021.

Sometimes it's easier to call it quits if it appears these watchdog groups will take a deeper look, and it may grow costly to battle. Earlier this year, Nvidia backed out of a $40 billion plan to acquire ARM for the same reasons. However, Broadcom is certain that the purchase will be approved.

We are convinced that authorities will realize that combining Broadcom and VMware will allow organizations to accelerate innovation and enhance choice by tackling their most challenging technological concerns in this multi-cloud age.


Featured image: EU


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