Pulling the deal marks a setback for T-Systems CEO Adel Al-Saleh, who since being hired at he start of 2018 has reduced staff, closed offices and sought to hive off business lines that are not expected to generate profitable growth.
"According to our preliminary assessment IBM holds a dominant position here in the European Economic Area which would have been further strengthened by acquiring personnel and essential infrastructure from its competitor, T-Systems," said Cartel Office chief Andreas Mundt in a statement on Friday.
The firms said in January they would team up to provide computing services at on-site servers, a traditional strength of IBM that has been challenged in recent years by the explosion of 'cloud' computing hosted at remote datacenters.
The companies did not disclose terms, but reports at the time said IBM would pay 860 million euros ($962 million) to T-Systems as part of the deal to take on the business that employs 400 staff.
Al-Saleh of T-Systems said IBM's withdrawal of its filing to the cartel office was by mutual agreement and he would explore further options.
"The mainframe services partnership with IBM would have been beneficial for all parties," he said in a statement. "Given the Federal Cartel Office position, we have decided to pursue other alternatives to drive value to our clients."
Al-Saleh added that mainframes would continue to be an important part of the T-Systems portfolio. "We are exploring other alternatives how we get latest technology and solutions to our clients."
No comment was immediately available from IBM.
(Reporting by Douglas Busvine, Editing by Mark Potter)