Dutch Authorities Block $115 Million Deal by a U.S. Tech Company

In November, a little-known American tech company announced a $115 million agreement to buy a little-known Dutch tech company.

Deals like this usually fade into obscurity. Not this time.

The proposed acquisition, which came as tensions festered between the Trump administration and Europe over issues as varied as tariffs and Greenland, set off a geopolitical uproar. The Dutch government held hearings over the deal and investigated it. U.S. diplomats jumped in behind the scenes, urging Dutch officials to approve the purchase.

On May 26, the Dutch government blocked the deal, the first known instance in which the Netherlands halted an acquisition by a U.S. tech company. The Dutch authorities said they had stopped the deal because U.S. officials could “force” the American company to share sensitive data that the Dutch firm processed for government services, according to the confidential judgment, which was reviewed by The New York Times.

“The threat to the public interest can only be averted by prohibiting the proposed acquisition,” Dutch regulators wrote in their judgment. “Geopolitical unpredictability,” they added, had created risks of “digital dependencies.”

In many ways, the details of the companies — Kyndryl, a firm based in New York City that runs corporate and government information systems, and Solvinity, a Dutch company that makes technology that underpins the Netherlands’ national ID system — are secondary to what the episode revealed: rising European suspicions about the United States.

For years, the American government blacklisted Chinese technology companies over national security and data privacy concerns. Now similar logic was being applied against a U.S. company by a NATO ally.

“We are beginning to see a tech-lash, a broader opposition to blindly trusting American tech companies with sensitive information,” said Emily Benson, the head of strategy at Minerva Technology Futures, which advises businesses on geopolitics and policy, and a former Commerce Department official. “I suspect this is the very beginning of a much more rigorous investment security regime in the E.U.”

The Dutch Ministry of Economic Affairs declined to comment and referred to earlier statements from the authorities, who said that blocking Kyndryl’s purchase of Solvinity was an isolated case based on the sensitive data involved.

“U.S. companies, like Kyndryl, are and will remain trusted and important partners,” Rob Jetten, the Dutch prime minister, said on social media after the deal was stopped. “One case does not change our strong bilateral relationship.”

On Monday, the Dutch government said it would consider blocking foreign acquisitions in the future in areas like artificial intelligence and biotechnology.

A senior Trump administration official, who declined to be named in order to express an unofficial position, said that the Dutch approach suggested American investment was not welcome and that it was consistent with a broader European offensive against U.S. tech companies.

Kush Desai, a White House spokesman, said the administration was committed to “advocating for American industries and companies, and continues to engage with the Netherlands and other trading partners to ensure fair and reciprocal market access and partnerships in the tech sector.”

Kyndryl and Solvinity declined to comment.

The collapse of the deal could be a sign of things to come. European leaders increasingly view reliance on U.S. technology as a threat to the region’s economic and geopolitical future. Amazon, Google and Microsoft dominate 70 percent of Europe’s cloud computing market. In the Netherlands, roughly two-thirds of the government’s information technology systems come from U.S. tech, according to a report by the Dutch broadcaster NOS.

Last week, the European Union outlined a “tech sovereignty” plan that included potentially blocking Amazon, Microsoft and Google from certain cloud computing contracts. In Britain, a parliamentary committee this month called for the termination of a health data contract worth 330 million pounds, or about $440 million, with the American tech firm Palantir, calling it an “unacceptable point of weakness.”

Europe’s backlash is linked largely to distrust of President Trump, said Bert Hubert, a technologist who has advised the Dutch government. European officials pointed to the International Criminal Court, where judges and other officials last year lost access to American digital services after being hit with U.S. sanctions. The administration also issued travel bans last year against leaders of European groups who had pushed for regulation of U.S. social media companies. And last week, Mr. Trump said he had been considering the U.S. government’s taking a financial stake in American A.I. firms, consolidating its ties to Silicon Valley.

“You’re selling control to Donald Trump is how it feels,” Mr. Hubert said.

Amid this friction, Kyndryl’s deal with Solvinity became a point of contention.

After the acquisition was announced in November, the Dutch Ministry of the Interior had said it had found no initial legal justification for blocking it. Kyndryl, formerly a unit of IBM, already has a contract with the Dutch military worth about 4 billion euros, or $4.6 billion. Solvinity, which is based in Amsterdam, has a foreign owner in Vitruvian Partners, a British private equity firm.

But opposition to the deal mounted. In the Netherlands, a country of 18 million, nearly every citizen uses the national ID system, DigiD, for access to taxes, health care records, benefits, pension information, education records and other government services. Solvinity’s technology underlies the system. Fears grew that U.S. officials could push Kyndryl to give up Solvinity’s data, or cut off access to the technology altogether.

In January, lawmakers held a hearing in The Hague, the center of government in the Netherlands, and pledged to scrutinize the deal.

“If the systems that connect Dutch citizens to their own government fall under the control of a U.S.-based tech company, essential public services risk becoming collateral damage in someone else’s power struggle,” said Barbara Kathmann, a member of the Dutch Parliament committee on digital affairs, who led the public hearing on the takeover.

In April, criticism increased after Pieter van Oordt, a top privacy official in the Interior Ministry, claimed that a report he had written about the national security risks of selling Solvinity to an American company had been overlooked. He said the company’s technology underpinned not just DigiD, but also a crucial government communication platform. Even if the likelihood of U.S. government interference was remote, it was not worth the risk, he said.

“We have to take care and protect the lifelines of the country, whether they are digital or otherwise,” Mr. van Oordt said in an interview. Solvinity should be owned by a Dutch company, he said.

Amid the blowback, Kyndryl, which was also facing an inquiry from the Securities and Exchange Commission for its cash-management practices, sought help from the Trump administration. Joe Popolo Jr., the U.S. ambassador to the Netherlands, along with the Office of the U.S. Trade Representative, privately urged Dutch officials to approve the deal, according to Dutch and American officials involved in the discussions. U.S. officials also raised the issue with representatives of at least one other Dutch company in Washington, an industry executive said.

Their efforts failed. The Dutch government announced last month that the deal would be blocked. “Politicization of this process has overshadowed the clear and important benefits this transaction would have brought,” Kyndryl said. Solvinity pledged to work with the Dutch authorities to address “national security, digital autonomy and the protection of Dutch critical infrastructure.”

The Dutch authorities have said their decision was “country neutral” and uniquely related to the national ID system. Mr. Jetten, the prime minister, met with Mr. Popolo, the U.S. ambassador, to assure him the blocked deal was not part of a trend.

The confidential judgment over the deal was more direct. In it, the Dutch authorities repeatedly raised concerns that the U.S. government could gain access to the national ID system. They cited a U.S. data access law, the CLOUD Act, which lets the federal government demand information about foreign citizens from American tech companies, even when the data was stored overseas.

Such laws put the Dutch system at risk of being “under the influence” of the U.S. government, the report said.

Last week, a Dutch minister announced that only companies based in the European Union could oversee the DigiD program going forward. That would “limit risks to national security,” she said.

Claire Moses contributed reporting from London.