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IBM’s $34bn Red Hat acquisition on track

By Marilyn de Villiers
Johannesburg, 28 Jun 2019

The European Union took only seven days to unconditionally approve one of the world’s largest tech mergers in history: IBM’s $34 billion acquisition of Red Hat.

This follows the deal receiving US regulatory approval last month, and effectively removes two of the biggest hurdles to its completion, which, according to both companies, is expected later this year.

Approval is still required in other jurisdictions, most notably China, but the EU’s green light was considered one of the most important.

The EU’s powerful anti-trust authority keeps a close eye on tech mergers. This was demonstrated in 2017 when it flexed its muscles and fined Facebook EUR110 million for what it said was providing “incorrect or misleading information” during its 2014 investigation into Facebook’s acquisition of WhatsApp.

In announcing the fine, EU commissioner Margethe Vestager said the penalty sent a “clear signal” that companies should comply with all aspects of EU merger rules.

“The commission must be able to take decisions about mergers’ effects on competition in full knowledge of accurate facts,” she added.

Yesterday, the EU stated it had concluded that the transaction between Red Hat, whose main activities relate to open source software and support services, and IBM – with its focus on IT software, hardware and services – “would raise no competition concerns”. The commission had officially been notified of the transaction on 20 May.

The EU Commission found the merged entity would continue to face “significant competition from other players in all potential markets”, and that IBM would not have sufficient market power to shut or marginalise its competitors by bundling or degrading the interoperability of Red Hat’s flagship Enterprise Linux product.

It also found it was unlikely the merged entity would degrade access to Red Hat’s source code or influence the development of specific open source products because of the “strong adverse counter-reactions” that would arise in the open source community if it did.

Therefore, the commission concluded “the transaction would raise no competition concerns in any of the affected markets and cleared the case unconditionally”.

Similarly, on 3 May, the US Securities Exchange Commission (SEC) informed IBM the US Department of Justice had concluded its review of IBM’s proposed acquisition of Red Hat “without remedies or conditions”.

According to the SEC, IBM and Red Hat would continue to work with competition authorities in other jurisdictions, with IBM continuing to expect the transaction, announced in October last year, to close in the second half of 2019.

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