IBM/Telelogic – Acquisition Update

What Happened?

The European Union’s Competition Commissioner, Neelie Kroes, announced that the initial investigation of the IBM/Telelogic deal has been completed and that the merger “could have adverse effects on competition” within the market for software modeling tools. As a result the EU has begun a second phase of investigation on October 3, 2007 to further examine the merger’s possible implications on the market.

This second phase of the review process gives the Competition Commission 90 working days to complete its examination, meaning clearance of the merger might not occur until February 20, 2008. In addition, if the Commission deems it necessary, a decision can be delayed an additional 35 working days, potentially pushing their judgment back until at least April 9, 2008!

In response to this announcement, IBM’s wholly-owned Swedish subsidiary, Watchtower AB, extended the acceptance period in regards to its cash tender offer to Telelogic share holders for the second time since originally declaring their intent to acquire Telelogic. Originally extended to October 9, the acceptance period’s deadline has now been set for 17:00 CET (11:00 EST) on December 7, 2007.

VDC’s View

VDC wonders if Watchtower’s date, well before that set by the EU, may help IBM to encourage a decision by the EU within the 2007 calendar year. Based on VDC’s market research, Telelogic’s 2006 acquisition of I-Logix has left IBM and Telelogic as the leading vendors of software modeling tools in the embedded market. While the merger completed and passed the antitrust review process in the United States, VDC believes that the EU Competition Commission’s decision may rest on IBM’s ultimate plans for the two companies’ competing offerings and the fate of Telelogic’s 1,100+ worldwide employees, 41% of whom are based in the EU.

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