IBM-PwC Deal Gets EU Nod

IBM’s $3.5 billion
acquisition
of the PricewaterhouseCoopers’ consulting arm cleared it
final hurdle Monday, when the European Commission gave its stamp of
approval. The merger is expected to close shortly.

The deal creates a technology services giant with IBM’s Global Services unit
reaching 80,000 employees with the addition of PwC Consulting’s 30,000. Yet,
with competition from other huge consulting firms, like EDS, the Commission
found that IBM would face considerable market pressure in the technology
services industry, which Gartner Dataquest recently pegged as worth $557.4
million in 2002.

“That analysis carried out by the Commission confirmed that IBM’s
post-merger share of the market for IT services will not raise any
competition concern given the marginal nature of the market share additions
from PwC Consulting and the significant number of global viable competitors,
as well as the large number of local or regional competitors, that the
merged entity will continue to face in Europe,” the Commission stated.

The Commission finding follows the Justice Department’s OK of the merger
earlier this month, when the 30-day federal
waiting period for regulatory objection to deal passed
. While the
approval was expected, the Commission’s antitrust arm in the past has
stepped in to block U.S. mergers that it has found would create a dominant
position for a company in Europe.

Last year, the Commission blocked General Electric’s $42 billion merger with
Honeywell, which would have been the biggest industrial merger ever. In the
case of the AOL-Time Warner mega-merger, the Commission forced the company
to cut some ties with Bertelsmann.

After toying with spinning off the consulting unit in an IPO,
PricewaterhouseCoopers decided to sell PwC to untangle its consulting and
auditing businesses in the wake of the accounting scandals sweeping
corporate America, striking a deal with IBM in late July.

PwC’s partners approved the deal Sept. 12, leaving the EU’s review as the
last remaining obstacle. The Commission investigated the combination’s
ability to bundle together IT products and services, but concluded that it
was not strong enough in any of these areas to cause anti-competitive
concerns.

IBM’s biggest worry now will be that continued economic uncertainly,
further exacerbated by a possible war with Iraq, will continue to drag on
already sluggish corporate tech spending.

The market for computer services has has remained
sluggish
, with researcher Giga Information Group recently reporting
spending on IT services would remain flat this year after incremental growth
in 2001. Services and outsourcing powered the technology-spending boom in
1999 and 2000, growing at a 20 percent clip.

Last month, IBM, which has the largest computer services practice in the
industry, reported its global services revenue fell for the third straight
quarter. Meanwhile, No. 2 computer services company EDS issued a revenue
warning last week, reporting customers had put off new services deals.

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