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The high price paid by IBM for the Red Hat software group helped its stock to fall by 5% early Monday, as investors worried about the bonus offered by the computer pioneer. .
The $ 34 billion announced Sunday night was 63 percent higher than Red Hat's closing price on Friday, and early trading put IBM at risk for its third biggest drop this year.
The buyout is part of IBM's search for new sources of revenue, as growth slowed and equities struggled to regain momentum gained in 2016.
While badysts are aware that Ginni Rometty, chief executive of IBM, is striving to reorganize the company, the size of the transaction – the largest in its history – has surprised some. This transaction far exceeds the size of IBM's previous largest acquisition of the Cognos business intelligence software company for nearly $ 5 billion in 2007.
"We expected some kind of significant strategic change in the near term, but we were not expecting an acquisition of this magnitude and perhaps recent market volatility has created an opportunity," said David Grossman, badyst at Stifel.
IBM badured investors that it would not change its dividends, but would suspend its share buyback program for 2020 and 2021.
"There is a strong strategic rationale for the purchase, which must be viewed positively. That said, the relative size of the transaction and the additional leverage will likely raise concerns, as well as the timing, "Grossman added.
Nomura badyst Jeffrey Kvaal said the premium paid for Red Hat was "obviously rich," but added that the IBM-paid sales multiple was lower than the one for the Microsoft GitHub transaction or the Microsoft GitHub transaction. Mulesoft acquisition by Salesforce, with the recent declines of Red The share price of Hat further accentuates the premium.
"The case is expensive. However, we think it works both financially and strategically, "he said. "It's as transformative as it is for IBM."
On Monday, Ms Rometty attempted to position the deal as the start of a new phase of growth for IBM, which has contracted for most of its seven years at the helm.
"It's all about growth," she said in a call with badysts. IBM's revenues declined further in the last quarter, ending a short-term recovery, with growth in newer companies such as Watson-based computer-badisted information technology being overwhelmed by a decline in traditional IT operations.
Ms. Rometty also sought to break out of the defensive environment that has settled on Big Blue as new cloud computing platforms, such as those run by Amazon and Microsoft, have become essential for the information technology market.
"We are playing to be number one," she said, saying the deal would position IBM as a counterweight to leading cloud companies.
She added that by buying Red Hat, IBM would have a stronger alternative by combining existing customer data centers with new cloud services, using an approach called "hybrid cloud."
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