IP/08/387

Brussels, 5 March 2008

Mergers: Commission clears proposed acquisition of Telelogic by IBM

The European Commission has approved under the EU Merger Regulation the proposed acquisition of Telelogic of Sweden by IBM of the US. Both companies are suppliers of software development tools, that is software used to develop software. The Commission's in-depth investigation, opened on 3 October 2007 (see IP/07/1443), has shown that the transaction would not significantly impede effective competition within the European Economic Area (EEA) or a substantial part of it.

IBM is active worldwide in the development, production and marketing of a variety of information technology ("IT") products, software and services. As part of its diverse software activities, IBM develops and sells software development tools. Telelogic is a Swedish software company.

The activities of IBM and Telelogic mainly overlap in the markets for modelling and requirements management tools. Modelling tools are designed to help software developers model the software before developing it. The software's functions are mapped out by creating visual models as well as by generating data definitions, programming specifications and ultimately the software code itself. Requirements management tools are designed to streamline and document a development team's analysis of new software's requirements.

The Commission's in-depth investigation, which included a detailed analysis of win/loss data, revealed that IBM's and Telelogic's modelling and requirements management products are not close substitutes, as they generally address different types of customers and different needs. Therefore, the removal of the competitive constraints between IBM and Telelogic as a result of the proposed transaction would not allow the merged entity to increase prices post merger.

The Commission's in-depth investigation also indicated that competition between IBM and Telelogic has not been a major force for innovation in the recent past. Instead innovation in the software development industry has primarily been spurred on by customers' increasing demands and by improved open standards.

Finally, although it would be technically possible for IBM to thwart interoperability between its software and those of third parties, the in-depth investigation revealed that the merged entity would have no incentive to engage in such a strategy, as the potential costs would by far outweigh the potential benefits.

More information on the case will be available at:

http://ec.europa.eu/comm/competition/mergers/cases/index/m94.html#m_4747