Tech Finance - Experts: IBM's $34 billion buy of Red Hat not quite a done deal
Date:2019-05-07 14:10:15 Posted by:franklin View:322
Even as regulators in the United States put their stamp of approval on IBM’s proposed $34 billion buyout of Raleigh open source giant Red Hat, legal experts say it’s not quite a done deal.
“Just because the U.S. has cleared it doesn’t mean there’s clear sailing in other jurisdictions,” said Larry Robbins, an attorney with Raleigh-based Wyrick Robbins.
IBM disclosed Monday that the U.S. Department of Justice had concluded its review of the deal “without remedies or conditions.” The companies have received a notice of “early termination” of the waiting period required by U.S. regulators.
“IBM and Red Hat continue to work with competition authorities in other jurisdictions, and IBM continues to expect the transaction to close in the second half of 2019,” a securities filing reads.
Adam Di Vincenzo, a partner at Gibson, Dunn & Crutcher LLP in Washington, D.C., who has dealt with cases such as this before, translates:
“From a U.S. standpoint, they’re done,” he said. “When the agency decides to grant early termination, it means that it has found no likelihood of competitive harm as a result of the deal … and the review is over. As far as the U.S. is concerned, the parties can close.”
Regulators in other countries “talk to each other,” and it’s “rare” that they reach different results.
But it does happen, he said.
Robbins agreed, saying many countries have similar processes when it comes to deal review, looking at combinations with “very similar lenses.”
“But it doesn’t necessarily mean that they are going to come out with the same answer and the same result, but I would agree that it’s unusual for a transaction like this to be cleared in the U.S. and for it to ultimately have problems in other jurisdictions,” he said.
“In this particular deal, the U.S. is a big hurdle, but the European Commission is also a big hurdle,” he noted. “The European Commission certainly will be interested in what the U.S. Department of Justice has done, but won’t necessarily just follow it.”
Robbins said regulators' investigations largely analyze whether the combination creates anticompetitive concerns, or causes consumers to have less bargaining power, resulting in rising prices.
“In most cases … the focus is going to be on pricing power, on anticompetitive power,” he said.
If regulators in a given country find the deal could impact pricing power, they could ask IBM or Red Hat to divest subsidiaries or affiliates, Robbins added.
The stakes are high for the Triangle when it comes to the IBM-Red Hat marriage. In addition to Red Hat Tower employing thousands in downtown Raleigh, IBM has one of its largest campuses in nearby Research Triangle Park. And IBM – often known as Big Blue – has staked its future on cloud computing, its executives have told analysts on earnings calls. Much of that strategy is pinned on the Red Hat deal, which, IBM CEO Ginni Rometty has said, creates the “undisputed” leader in hybrid cloud.
The deal will also mean the loss for Raleigh of a major corporate headquarters. The Triangle economy benefits from the strength of its universities and state government, but the region lacks the heft of major corporate headquarters such as Charlotte.
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