The UK government is investigating whether HashiCorp’s acquisition of IBM cloud infrastructure will lead to a “substantial reduction in competition” in the country’s markets.
IBM announced its intention to buy HashiCorp for $6.4 billion in April 2024 to help it support its customers’ growing demands for AI. HashiCorp provides hybrid and multi-cloud lifecycle management products such as infrastructure such as the Terraform coding tool that makes it easy to build and operate AI applications.
HashiCorp will operate as an IBM software division and will not be incorporated into Red Hat, IBM’s open-source subsidiary. It said the deal will help its products reach a larger audience.
The Competition and Markets Authority notified both companies of the upcoming Phase 1 investigation in August. 1. 2024 and formally launched it on December 30. He will have until February to make a preliminary decision on whether to carry out a full investigation. 25 and relevant third parties can submit comments until January. 16.
IBM declined to provide further comment. TechRepublic asked HashiCorp for a response.
The IBM-HashiCorp deal drew criticism
IBM has struggled since the acquisition was announced and is under review by the US Federal Trade Commission for possible antitrust concerns.
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IBM shares fell about 9% shortly after the announcement as it now reported first-quarter total revenue $90 million below London Stock Exchange estimates.
Conversely, HashiCorp shares rose 4% after suffering a significant decline in 2023 due to the relicensing of Terraform from the open-source Apache 2.0 to the more restrictive Business Source License. This alienated parts of the open-source community, and they split the original Terraform code into open-source OpenTof and placed it under the supervision of the Linux Foundation.
Additionally, in June, investor HashiCorp sued the company, alleging that the IBM acquisition unduly favored its board members over shareholders. The executives reportedly wanted significant personal benefits from the deal, such as certain “golden parachutes” and the conversion of their large, illiquid stock into cash.
Such incentives, according to the plaintiff, created a conflict of interest, leading the board to prioritize the acquisition of IBM over potentially more lucrative opportunities for shareholders, potentially diluting the value of their investments. However, the lawsuit was mysteriously withdrawn two days later.
The UK cloud market is not a level playing field
In October 2023, telecoms regulator Ofcom identified various issues in the UK cloud market that pose challenges for businesses and consumers, including the dominance of Amazon and Microsoft. Microsoft’s Azure and AWS have between 70% and 80% of the UK cloud services market, compared to Google Cloud’s 10%.
One of the most pressing issues is the cost of migrating data from cloud platforms. This cost barrier discourages customers from switching between cloud providers, stifling competition in the industry.
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Shortly after these results were published, the CMA began investigating the issues raised. Those results — and any potential redress of anti-competitive practices — are expected to be announced later this month.
Synopsys and Ansys merger likely to be approved
On December 20, the CMA completed its Phase 1 investigation into the $35 billion acquisition of simulation software company Ansys by chip design software provider Synopsys. It represents the largest technology deal since 2023, when Broadcom acquired VMware for $69 billion.
The CMA has found that the merger has the potential to substantially reduce competition in the chip design and light simulation market, but may still approve it if both companies submit acceptable mitigations.
Synopsys and Ansys compete in three key sectors. The first is an energy consumption analysis at the register transfer level, which assesses the energy intensity and utilization of the chip. The other two are optics and photonics software, both used to design and model light-related products such as camera lenses, television displays, car headlights, and lasers.
A merger of these companies could limit product choice in three areas, as they would become the market leader and smaller companies would have difficulty competing. “This could lead to a loss of innovation, lower quality software and/or higher prices, which may then be passed on to UK businesses and consumers,” the CMA said in its press release.
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The CMA also assumed that the agreement would allow Synopsys and Ansys to limit the interoperability of their products in order to maintain dominance. However, the investigation found that this feature is so important to their customers that they would switch providers if threatened, leaving them with no incentive to do so.
Synopsys announced the deal in January 2024, saying it wanted to expand its reach across silicon-to-systems designs and combine its electronic design automation expertise with Ansys’ simulation. Ansys accepted the deal to accelerate its growth and offer more integrated solutions to its customers. The two had worked together for several years by then.
If the companies did not propose suitable mitigations by 31 December 2024, the Competition Authority would conduct a more detailed Phase 2 investigation. However, Synopsys said in a published response that it had “already taken steps to address all concerns raised by the CMA”. One such move is a promise that Ansys will sell its optical solutions business to another company after the acquisition closes.
The merger is expected to be approved by the European Commission, Reuters reported. The sources added that Synopsys would offer the same remedies to the CMA as it did to address competition concerns in the EU
“Together, Synopsys and Ansys can help drive innovation across industries by meeting customers’ rapidly growing need for system design solutions that provide deeper integration of EDA software and simulation and analysis (S&A) software,” said a Synopsys spokesperson.