Sharecast - The UK competition regulator made the decision after citing concerns that the merger could result in a substantial lessening of competition.
Last week, it gave Broadcom (NASDAQ:AVGO) the opportunity to address the concerns by offering an “acceptable” undertaking.
However, the American semiconductor giant told the CMA on 22 March that it would not make any such offers.
Broadcom and VMware first announced the deal in May last year, under which Broadcom would acquire all outstanding shares of VMware in a cash-and-stock transaction.
The deal, as announced, valued VMware at $61bn, with Broadcom also taking on $8bn of VMware's net debt.
Wednesday’s decision to proceed to a phase two investigation would give the CMA more time to assess whether the merger was likely to negatively impact competition in the UK.
Neither Broadcom or VMware had commented publicly on the decision on Wednesday morning.
At 0700 EDT (1200 BST), shares in Broadcom were up 1.06% at $631.30, and those in VMware were down 0.5%, in pre-market trading on Wall Street.
Reporting by Josh White for Sharecast.com.