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IBM's purchase of Red Hat Inc., worth US $ 33 billion – the second largest technology contract in the world – aims to catapult the company into a leading competitor in the cloud computing industry.
IBM's largest cash deal strengthens the 107-year-old IT giant's strengths in the fast-growing, lucrative cloud marketplace and provides the growth potential for growth real income. The company, once synonymous with mainframe computing, has been slow to embrace cloud technologies and has had to catch up with market leaders Amazon.com Inc. and Microsoft Corp. by offering software and other computer and other services over the Internet. IBM's shares fell in US pre-market trading.
"The acquisition of Red Hat is changing the game," said Ginni Rometty, chairman and chief executive of International Business Machines Corp., in a statement released on Sunday. "It's changing everything in the cloud market."
IBM's turnover has been reduced by nearly a quarter since Rometty, 61, badumed the role of CEO in 2012. Although part of this amount is due to divestments, it comes in much of the decline in sales of hardware, software and legacy services. compete with young technology companies. She has been trying to steer IBM toward more modern businesses, such as the cloud, artificial intelligence and security software, with inconsistent results.
IBM shares lost about 5% early in the US trading on Monday. The stock has fallen 19% this year, giving it a market value of 114 billion US dollars.
In its third quarter earnings report, IBM disappointed investors who were looking for more progress in these areas after six years of declining sales, which had only recently begun to show gains. Nevertheless, the improvements had been largely driven by IBM's mainframe activities, rather than by its so-called strategic imperatives. The Cloud business figure grew 10% over the period, reaching $ 4.5 billion, but this was slower than the 20% expansion recorded in the second quarter.
The Red Hat deal could tell investors that IBM was not as well placed in the cloud as it claimed, said Jim Suva, badyst at Citigroup Research.
"We are waiting for investor skepticism about this deal, given that IBM's transformation is well under way," he said.
Investors have been impatient, with the stock falling 31% in the last five years. Warren Buffett virtually abandoned IBM last year. Its conglomerate, Berkshire Hathaway Inc., has reduced its interest in the company by 94%, while increasing its investments in Apple Inc.
The Red Hat deal demonstrates Rometty's belief that organic growth alone would not be enough to keep IBM from falling behind in a growing and larger market.
The acquisition of Red Hat now makes IBM a "credible player in the cloud," said Anurag Rana, an badyst at Bloomberg Intelligence. "It gives them an badet that looks forward and not backward."
IBM will pay $ 190 per share to Raleigh, North Carolina-based Red Hat, according to a statement released by the two companies on Sunday, confirming Bloomberg News' previous report. This represents a 63% premium to Red Hat's closing price of $ 116.68 per share on Friday.
Rometty said that IBM "paid a very fair price. It's a premium company. If you look below, you will see strong revenue growth, solid earnings and significant free cash flow, "she said.
Red Hat, which sells software and services based on the open source Linux operating system, is expected to exceed $ 3 billion for the first time this year, Red Hat Enterprise Linux of the company attracting large accounts customers. Last quarter, the company announced 11 contracts of a record value of over 5 million US dollars and 73 more than a million US dollars, according to a JMP badyst note. Securities, Greg McDowell. Red Hat was founded in the 1990s by the Canadian Bob Young.
At the same time, last-quarter sales have generally exceeded badysts' expectations, and forecasts for the current quarter have also been disappointing, fueling Red Hat's concerns about the possibility of losing contracts to its rivals and investors. slow down growth. The company said at the time that the slowdown had reached its low point. Red Hat shares fell 28% in the last six months to Friday, according to data compiled by Bloomberg.
IBM based in Armonk, NY, will continue to increase its dividend and neither company will cut jobs after the deal, Rometty said.
"This is an acquisition that contributes to revenue growth, not cost synergies," she said.
JPMorgan Chase & Co., Goldman Sachs Group Inc. and Lazard Ltd. advised IBM on the transaction. Morgan Stanley and Guggenheim Partners were Red Hat's financial advisors, while Skadden Arps Slate Meagher & Flom provided legal advice.
"Recognizing the importance of open and hybrid cloud technologies to help businesses unlock value, we are seeing the potential for bringing these two companies together," said Jamie Dimon, CEO of JPMorgan, in a statement.
Bloomberg.com
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