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June 27, 2019updated 28 Jun 2019 9:58am

European Commission Unconditionally Approves IBM’s Red Hat Buyout

"The merged entity would not have sufficient market power to shut out or marginalise its competitors"

By CBR Staff Writer

The European Commission (EC) has unconditionally approved IBM’s landmark $34 billion acquisition of open source vendor Red Hat.

Europe’s executive arm took just nine weeks to waive the deal through.

Among the issues it had assessed: whether IBM could reduce the competitiveness of rivals’ offerings by degrading their interoperability with Red Hat Enterprise Linux.

The US’s Department of Justice approved the deal on May 7. IBM only filed for approval of the proposed deal with the EC on May 20.

“The Commission concluded that the merged entity would not have sufficient market power to shut out or marginalise its competitors by bundling or degrading interoperability” it said in a statement issued today.

Red Hat integrationThe EC’s regulators even added a positive twist to their assessment: “The Commission took note of the potential pro-competitive rationale of this acquisition.”

“This reflects, in particular, IBM’s intention to use the complementary capabilities of Red Hat to further develop and offer open hybrid cloud solutions.”

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“This would increase choice for enterprise customers who could more easily shift workloads between on premise servers and multiple public and private clouds.”

During its investigation, the Commission assessed the impact of the deal on the markets for middleware and system infrastructure software. It found that the merged entity would “continue to face significant competition from other players in all potential markets”, noting that “as the success of Red Hat significantly hinges on its neutrality, any strategy impairing this neutrality would likely damage Red Hat’s business.”

IBM issued $20 billion-worth of bonds in May, in part to finance the sale. Closure of the deal is expected in Q3 and could come as early as July.

In its last quarterly report before the deal is expected to close, Red Hat beat Wall Street estimates for earnings, doubling its $5 million-plus deals and securing a new cloud contract worth $15 million. Revenues were $934 million.

See also: Google to Buy Business Intelligence Startup Looker for $2.6 Billion


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