The European Commission has commenced an in-depth investigation into American chipmaker Broadcom’s (NASDAQ:AVGO) proposed acquisition of software company VMware (NYSE:VMW). The Commission is mainly concerned that the acquisition will allow Broadcom to hurt competition for certain hardware components that “interoperate with VMware’s software.”
European Antitrust Regulator’s Concerns
The Commission’s preliminary probe triggered concerns about the deal allowing Broadcom to restrict competition for hardware components such as network interface cards, fibre channel host-bus adapters, and storage adapters. Particularly, Broadcom may degrade interoperability between VMware’s server virtualization software and rivals’ hardware components to ensure preference for its own hardware.
Furthermore, the company can completely shut out rivals by preventing them from using VMware’s server virtualization software or “degrading” their access to it. The Commission believes that such actions could result in “higher prices, lower quality and less innovation for business customers, and ultimately consumers.”
The Commission will reveal its decision by May 11, 2023. Nonetheless, it stated that an in-depth probe “does not prejudge the final result of the investigation.” Meanwhile, Broadcom stated that it would continue to cooperate with the European Commission and expects the deal to close in Fiscal 2023.
Broadcom announced its decision to acquire VMware in May this year as part of its strategy to expand its presence in the enterprise software space. The proposed deal has received clearance in Brazil, South Africa, and Canada. It has also obtained foreign investment control clearance in Germany, France, Austria, and Italy.
What is the Price Target for Broadcom?
Broadcom stock has declined 18.3% year-to-date. At $654.73, the average price target implies 20.4% upside potential from current levels. AVGO stock scores the Street’s Strong Buy consensus rating based on 11 Buys and one Hold.