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March 12, 2019updated 13 Mar 2019 9:10am

IBM’s “Potential” Red Hat Acquisition: Deal Facing Delays?

"Most of our challenge has frankly been in the US"

By CBR Staff Writer

UPDATED 09:00GMT March 13, 2019: IBM’s Vice President, Corporate Communications tells Computer Business Review “the IBM executive misspoke”. The company reiterates that IBM expects to close the Red Hat acquisition in the second half of 2019.

IBM has not yet formally filed for approval of its Red Hat acquisition with European regulators and is unlikely to do so this month, according to M&A publication CTFN. With DealReporter meanwhile claiming IBM has received a second request for details on the deal from the US’s Justice Department, the company’s David Simpson, Vice President, Cloud Services, seemed to suggest today that delays could be on the horizon.

During his speech at Cloud Expo Europe in London, Simpson hit the right talking points on hybrid cloud repeatedly, but it was his comments about IBM’s acquisition of Red Hat that drew the questions from an audience that included Computer Business Review.

While discussing IBM’s future strategies, Simpson used the qualifier that IBM would “potentially” acquire Red Hat, (the company agreed a $34 billion offer last October) adding “acquiring Red Hat will, once we hopefully close it, add to our strategy”

IBM Red Hat Deal: “I have given up trying to predict race horses, soccer games or football games and governments”

When questioned further about the fate of the Red Hat acquisition Simpson said: “I have given up trying to predict race horses, soccer games or football games and governments…” He added: “We have stated that our intent is to try and close that acquisition through the regulators in this fiscal year.”

“Most of our challenge has frankly been in the US” he said, joking that one cause of delay had been that the country had not “been working for a while”, presumably referring to the 35-day government shutdown the US experienced.

Read More: IBM Swoops on Red Hat in $34 Billion “Game Changing” Deal

M&A specialist research house Manalo LLP in a February 25 report noted: “From an antitrust perspective, the Red Hat / IBM transaction has presented a degree of complexity due to the parties’ long-standing vertical relationships.”

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“Red Hat and IBM are partners rather than competitors and work together on the open source Linux software platform. Regulators could probe whether IBM has an incentive to shift or reshape these vertical relationships in a manner which could be considered anti-competitive, for example, by halting the supply to competitors or degrading interoperability with competitors’ products.”

IBM Red Hat deal

Most analytics suggest the company will face few troubles with western regulators, citing little competitive overlap between the two companies, but have raised questions about Chinese permission amid an ongoing trade war that has seen large tech companies caught in the crossfire.

“We do not see any regulatory inhibitors,” IBM Chief Executive Officer Ginni Rometty told investors on a conference call when the deal was announced.

If the deal falls apart and Red Hat accepts a competing offer, Red Hat will have to pay IBM a breakup fee of $975 million, according to a filing with the U.S. Securities and Exchange Commission. Red Hat, the maker of Linux operating system software, is also prohibited from soliciting other acquisition proposals.

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