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IBM won't buy T-Systems’ mainframe business after Bundeskartellamt said 'no'

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Christian Fernsby ▼ | June 11, 2019
IBM Deutschland GmbH, Ehningen, has withdrawn its notification of plans to acquire essential hard and software as well as personnel from the mainframe service business of T-Systems International GmbH, Frankfurt am Main.
Acquisition   Mainframes are powerful computers used by large companies and public
The Bundeskartellamt had previously made clear to the companies that there were preliminary competition concerns about the acquisition and the connected outsourcing cooperation.

Andreas Mundt, President of the Bundeskartellamt: “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 our preliminary assessment IBM holds a dominant position here in the European Economic Area which would have been further strengthened by acquiring personnel and essential infrastructure from its competitor, T-Systems”.

Mainframes are powerful computers used by large companies and public institutions worldwide to store and process large amounts of information and for high-speed bulk data processing.

Mainframes are used for critical business processes due to their high reliability, availability and ease of maintenance.

The mainframes in this case are proprietary systems which IBM has produced and sold since 1964.

However, many companies no longer carry out mainframe services themselves but outsource them to providers such as IBM and T-Systems.

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.

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.

The merger project was closely examined in second phase merger control proceedings which involved extensive investigations.

Due to the withdrawal of the notification by the parties, the proceeding was concluded by the Bundeskartellamt without a formal decision.

The merger cannot therefore be implemented.