February 25, 2019 | Technology | North America | Ended

Red Hat / IBM: Vertical Limit: The Cloud, Linux and European Antitrust Scrutiny

From an antitrust perspective, the Red Hat / IBM transaction has presented a degree of complexity due to the parties’ long-standing vertical relationships. Red Hat and IBM are partners rather than competitors and work together on the open source Linux software platform. Regulators could probe whether IBM has an incentive to shift or reshape these vertical relationships in a manner which could be considered anti-competitive, for example, by halting the supply to competitors or degrading interoperability with competitors’ products. This potential for vertical effects is more likely to raise eyebrows with the European Competition Commission (EC) than the US Department of Justice (DoJ). In this report, we examine the segments of the cloud market where Red Hat and IBM operate, and where competition issues potentially arise. We then analyse how European and other antitrust regulators could deal with these based on precedent reviews.

Contents 1. Cloud Computing: Industry Background and IBM’s Interest in Red Hat 2. Market Shares and Potential Antitrust Risks 3. European and US Antitrust Clearance Processes and Precedents 4. Break Price Analysis 5. Risk Arbitrage Trading Thoughts and Timing Appendix A. Deal Structure (34 pages)

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