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Technology / Cybersecurity

EU Demands Divestment as it Approves Thales’ €4.8 Billion Gemalto Takeover

The European Commission has approved the €4.8 billion ($5.6 billion) takeover of Gemalto by France’s defence multinational Thales Group, despite initial fears it would lead to a monopoly in the hardware security module (HSM) market.

An HSM is a dedicated crypto processor used to secure cryptographic keys and support encryption, decryption, authentication, and digital signing services.

Thales and the Netherlands’ Gemalto are the world’s two largest HSM producers and provide them to customers including major cloud services providers and leading banks.

thales gemalto

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But the all-cash deal – initially made in December 2017 and unanimously approved by Gemalto’s and Thales’s Boards of Directors – comes with strings attached.

Thales will be forced to divest its global general purpose HSM business, marketed under the nShield brand, as despite competition from cloud HSM providers, the European Commission found that the combined entity would be a competition risk.

“Today’s decision allows the creation of a strong European player in this market, while still ensuring that the merger will not prevent customers from continuing to enjoy fair prices and innovative products” said Competition Commissioner Margrethe Vestager.

She added: “This is because we have approved the deal subject to Thales’ offer of a strong remedy that will fully preserve competition on this important market.”

Thales Gemalto Deal: Initial Warnings of Higher Prices and Reduced Innovation

The Commission had opened an in-depth investigation into the merger last July due to HSM monopoly concerns, warning that “by reducing the number of players in the market and by lowering the merged entity’s incentives to compete effectively, the transaction could lead to higher prices and reduce innovation.”

The EU’s investigation found that there are two distinct product markets with regards to HSMs, there is the general purpose application of HSMs and the thales gemaltouse of HSMs for the processing of payments. Continued ownership by Thales of its general purpose HSM business would represent a competition risk, the Commission found.

It said today: “By reducing the number of players in the general purpose HSM market and by lowering the merged entity’s incentives to compete effectively, the transaction as notified was likely to lead to higher prices, less choice for customers and less innovation.”

Commissioner Margrethe Vestager, in charge of competition policy comment in the announcement that: “The importance of data security solutions to protect critical social, commercial or personal information is increasing.”

The combined group will have more than 28,000 engineers, 3,000 researchers, and invests more than €1 billion in self-funded R&D, Thales noted.

See also: European Commission: “We Need to Invest €20 billion in AI”

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CBR Staff Writer

CBR Online legacy content.