Compass Lexecon advises IBM in its $34 billion acquisition of Red Hat

On 27 June 2019, the European Commission unconditionally approved the acquisition of Red Hat by IBM at Phase I. The Commission’s clearance decision followed unconditional approvals by the U.S. Department of Justice and several other national competition authorities. The $34 billion transaction, which will be the largest software and third-largest tech merger ever completed, combines IBM’s wide range of enterprise software, hardware and IT services offerings with Red Hat’s leading position in open-source enterprise software and support services.

Compass Lexecon experts worked closely with IBM and its legal advisors, Hogan Lovells and Cleary Gottlieb Steen & Hamilton LLP, throughout the Commission’s merger review process and continue to provide support on reviews by other national authorities.

Our experts assisted the parties to respond to concerns related to a range of horizontal, vertical and conglomerate effects that were raised by the Commission and third parties during the review process, including that the merger would: lead to a reduction in competition in middleware and system infrastructure software; give IBM the ability and incentive to bundle, or to degrade the interoperability of, the parties’ offerings with rivals’ hardware and software offerings, to weaken competition from these rivals across the enterprise IT stack; and cause IBM to restrict access to Red Hat’s source code or to influence the direction of its open source projects to weaken competition from existing and potential competitors.

Our experts also assisted the parties to demonstrate that substantial pro-competitive benefits would result from the merger. These included IBM’s intention to use the complementary capabilities of Red Hat to further develop and offer open hybrid cloud solutions, thereby increasing the choice for enterprise customers.

The Compass Lexecon team included Jorge Padilla, Kirsten Edwards-Warren, Gregor Langus, Andrew Swan, Vilen Lipatov, Su-Ann Lim, Aiden Lo, Shiva Shekhar, Kacem El Guernaoui, Juho Anttila and Balram Sennik in Europe, and Elizabeth Wang, Todd Kendall, Sophie Yang, Mary Li, Binbin Deng, Jake Cheng, Theodore Kalambokidis, Bella Li, Willow Liu, and Xiao Yu in the United States.