Competition body blocks IBM purchase of Schlumberger arm

The Competition Authority has blocked IBM from buying an Irish subsidiary of multinational Schlumberger, arguing that the deal would breach the Republic's competition law.

In the first negative ruling made under merger control legislation introduced last year, the authority announced yesterday that it would not allow IBM's proposed acquisition of Schlumberger's Irish business recovery arm to go ahead, as it would substantially cut competition in the Republic's disaster recovery market.

Disaster recovery involves providing information technology back-up and alternative workplaces for businesses that are forced to leave their normal premises by emergencies and unforeseen events.

The Irish market in this area is worth an estimated €15 million a year. Schlumberger is said to account for around €10 million of this and IBM Ireland is its nearest competitor. The authority's statement said yesterday that the pair "competed directly and closely" with one another. Its chairman, Mr John Fingleton, estimated that the merged entity would have 80 per cent of the Irish market.

"Neither of the other two business recovery services in the State, nor the combination of both of them, would exert sufficient competitive pressure to discipline the combined marketing power of the merging parties," the authority's statement said.

Its ruling concluded that the takeover would "substantially lessen competition for goods or services in the State". This would amount to a breach of the Republic's anti-monopolies law.

The IBM Ireland-Schlumberger business continuity services takeover is part of a €200 million global deal struck between their multinational parent companies in April.

Under that agreement, IBM is to buy out all of Schlumberger's disaster recovery operations. The oilfield services specialist has been selling businesses it regards as non-core in recent months.

The Competition Authority's ruling means that the Irish element of the deal cannot go ahead. The parties have one month from yesterday to appeal to the High Court against the ruling.

A spokesman for IBM Ireland said that the company would study the ruling before deciding on any further action. It was not possible to contact a Schlumberger spokesperson.

The Competition Authority, the State monopoly watchdog, made the ruling under provisions contained in the Competition Act, 2002, which came into force in January of last year. The law obliges the agency to investigate all mergers in the State where the parties have a global turnover of more than €40 million.

IBM Ireland and Schlumberger formally notified the authority of the deal last May. That sparked a five-month investigation by the authority's merger division, led by Mr Edward Henneberry. It had until today to complete its enquiry.

Merger investigations involve a first phase or initial investigation that takes up to two months. If the authority believes it is needed, it goes ahead with a second phase or full investigation. The act allows it three months to complete this stage.

The Competition Authority said yesterday that the IBM-Schlumberger deal was the fifth case to go to a full investigation and the first in which a deal was blocked.