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IBM Warns of M&A Threat

Stocks in this article: IBM NZ RDWR FTNT

WASHINGTON, D.C. ( TheStreet) -- IBM (IBM) has warned that its aggressive acquisition strategy and organic growth could be impacted by increased regulation of the derivatives market.

Tammy Evans, IBM's director of global funding, has expressed concern that IBM could be included on a list of large derivative users, according to the Financial Times.


The recent Dodd-Frank Wall Street Reform and Consumer Protection Act could have a major effect on the tech giant, particularly if IBM is classified as a "major swap participant," which means the company would be required to post margin against derivative trades.

"You could potentially have $5 billion of capital that's held up with margin requirements," explained Evans during a derivatives conference organized by the U.S. Chamber of Commerce. "That equates to a year's worth of acquisitions and so that would either eliminate the ability for us to go and acquire companies or do some organic growth."

With IBM's derivatives portfolio valued between $40 billion and $45 billion, Evans is also worried about the potential effect on the jobs market, according to the FT report. "Our model makes a lot of assumptions and the government hasn't yet declared how the margin might be calculated," she added.

Signed into law by President Obama this summer, the Dodd-Frank Act has been described as the most sweeping change in U.S. financial regulation since the Great Depression. The legislation, which aims to increase oversight of U.S. financial markets, was born out of the financial crisis that wrought havoc on the global economy in 2008 and 2009.

Earlier this week, the Securities and Exchange Commission laid out its timetable, highlighting upcoming rule proposals for new measures under the Dodd-Frank Act.

IBM, which acquired data warehousing specialist Netezza (NZ) for $1.7 billion on Monday, is one of the tech sector's biggest M&A players. In the business analytics space alone, IBM has bought more than 23 companies in the last five years, parsing out more than $12 billion.

Other companies that have recently been touted as IBM acquisition targets include security specialist Fortinet (FTNT) and Israeli networking firm Radware (RDWR).

IBM shares crept up 48 cents, or 0.36%, to $132.46 on Wednesday, mirroring the modest advance in tech stocks that saw the Nasdaq gain 0.08%.

--Written by James Rogers in New York.

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