IBM, PwC notify EC of merger plan

by Paul Meller

August 29, 2002 —

IBM Corp. notified the European Commission of its plans to acquire the consulting division of accountant PricewaterhouseCoopers LLP Thursday.

The notification marks the beginning of an initial one-month assessment of the estimated US$3.5 billion deal by the European Union's competition regulator. If concerns about its impact on competition remain at the end of that period the Commission will open an in-depth four-month probe.

IBM's Global Services unit is the world's largest IT services group, and has a strong presence in the EU market. PwC's consulting unit could extend that lead. If the Commission sees the deal enhancing a dominant position then it will insist that the companies make divestments in order to secure regulatory approval, said an EU official.

"It all depends on how the Commission defines the market," said a Brussels competition lawyer who requested anonymity. "The broader the definition, the more likely the deal will get the go-ahead," he said.

A broad definition would include consulting services to the public sector and large corporations. However, the lawyer said he fears the Commission might focus on the specific sectors that IBM currently dominates.

Two years ago the Commission granted Cap Gemini Sogeti SA the go-ahead to acquire accountant Ernst & Young, a deal similar to that proposed between IBM and PwC, without imposing any conditions. It said at the time that the IT services market remained fragmented, rapidly growing and driven by technological innovation.

Market conditions have changed sharply since then, the lawyer said."The market isn't rapidly growing any more, and technological innovation isn't driving it quite as fast as it did in 2000," he said.

The Commission must decide whether to clear the deal or launch an expanded inquiry by Sept. 23. That initial deadline could be extended by two weeks if IBM proposes divestments.

IDG News Service