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IBM had to withdraw its plans to acquire T-Systems after German anti-monopoly watchdog refused to give a green light for the transaction.
German anti-trust office says “no”
IBM has officially withdrawn its notification of plans to acquire essential hardware and software as well as personnel from the mainframe service business of T-Systems International GmbH, Frankfurt am Main.
The acquisition was to have included T-Systems’ key hard and software as well as several hundred specialist personnel to operate these high-performance computers but not the takeover of T-Systems’ existing end customer contracts. The parties had also planned to enter a long-term cooperation agreement by which IBM was to provide its mainframe services to T-Systems’ end customers as a subcontractor.
“Although there is a growing tendency for companies to migrate their data from powerful mainframe computers to more modern technologies such as the cloud, mainframe services still account for a market worth billions. According to preliminary assessment of Bundeskartellamt, IBM holds a dominant position in the European Economic Area which would have been further strengthened by acquiring personnel and essential infrastructure from its competitor, T-Systems”, said Andreas Mundt, President of the Bundeskartellamt.
IBM dominates mainframe market
The proposed acquisition would have affected the Europe-wide market for mainframe services. IBM is also active on this market and, according to the Bundeskartellamt’s investigations, is by far the market leader ahead of its competitors such as T-Systems, Atos, DXC, Finanz Informatik, Fiducia & GAD IT, among others.
IBM’s strong market position in mainframe services is also strengthened by the fact that all its competitors in this area of activity depend on its services because the company is in fact the only manufacturer of the mainframes concerned. Another aspect which had to be considered was that any possibility for customers to switch to other data centre systems or cloud solutions involves very high investment.
According to the Bundeskartellamt’s preliminary assessment the proposed concentration, in particular the staff transfer (mainframe infrastructure specialists are rare and much sought-after) and the planned outsourcing cooperation, would have strengthened IBM’s dominant position. The cooperation would also have improved IBM’s access to sales markets. Due to the transaction T-Systems would no longer be independent and would not have been active to the same extent on the market as previously, which would have benefited IBM in particular. The remaining smaller competitors in the market were not expected to compensate for this effect.
Transaction worth €860 million
The merger was officially announced at the beginning of 2019. The companies refused to disclose terms, but reports at the time said the transaction could amount to approx. €860m and 400 employees would be involved. Not all of the units of T-Systems had supposed to be connected with the deal. Some of them were already merged with local units of T-Mobile in particular countries (e.g. Poland) and would have been excluded from the take-over.