The European Commission has cleared under the EU Merger Regulation the proposed acquisition of French software vendor ILOG S.A. by the US company International Business Machines Corporation (IBM). After examining the operation, the Commission concluded that the transaction would not significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it.

International Business Machines Corporation (IBM) notified the Commission, on October, 6th, its intention to acquire sole control over ILOG S.A. (ILOG) by means of a cash tender offer to be launched for the totality of ILOG's outstanding  shares, within what was qualified as an "operation of concentration".

IBM and ILOG main activities

• International Business Machines Corp., (Public, NYSE:IBM) is active worldwide in the development, production and marketing of a variety of information technology ("IT") solutions including computer software, hardware and related services.
• ILOG S.A. (ADR) (Public, NASDAQ:ILOG), is active in the development of computer software and has three principal business lines: business rules management software, optimisation software and visualisation software. ILOG also offers supply chain management applications.

While the proposed transaction would give rise to some horizontal overlaps in the wide software category of "application development and deployment", under a narrower product market definition IBM's and ILOG's respective software products are complementary. There are also horizontal overlaps for supply chain management applications.

The Commission’s investigation confirmed that the horizontal overlaps between the activities of IBM and ILOG are very limited and that, for all software products concerned, the merged entity would continue to face several strong, effective competitors after the proposed transaction.

Vertical and conglomerate links exist between the parties' activities, as ILOG's business rules management software products can be embedded in IBM's business process management products. In addition, ILOG's optimisation software can be embedded in supply chain management applications, where IBM is active. As for ILOG's visualisation software, it can be embedded in various software products such as operating and events processing software.

However, the Commission found that the merged entity would neither have the ability nor the incentive to restrict access to ILOG's products because several competitors supply similar software products. The Commission also found that the merged company would be unlikely to engage in a strategy of closing off customers by denying competitors of ILOG access to IBM's demand for their products, given the existence of alternative sales channels and IBM's limited importance as a customer for software products of ILOG and its competitors. Finally, adding ILOG's products to IBM's existing software portfolio would not raise any concerns about conglomerate effects.