By far this is the biggest deal ever made by IBM, it purchased Red Hat Inc in $33 billion capitulating ranks of the top cloud software competitors. This boosts the 107-year-old computer service giants credentials in the very fast-growing cloud market and gives revenue growth too.
The Company has been very slow to adopt cloud technologies and has caught to play market leaders Amazon.com Inc and Microsoft Corp. and services over the internet.
The acquisition of Red Hat is a game-changer. It changes everything about the cloud market, - Ginni Rometty, chairman and chief executive officer, IBM Corp.
IBM has seen a lot of declined revenue by almost a quarter since 2012 when Rometty became the CEO. Most of them have declined existing software, hardware and offering services as a company is struggling a lot in front of the new company technologies. Though she tried a lot for the improvement as she made a move towards artificial intelligence, cloud, and security software but got no consistent results.
The Red Hat deal could signal to investors that IBM wasn’t as well positioned in cloud as it had been claiming, we expect investor skepticism around the deal given IBM’s messaging that it is well underway in its transformation. - Jim Suva an analyst at Citigroup Research
This year the stock is now down by 19 percent and 31 percent from the last five years, has given IBM, a market value of $114 billion. Last year Warren Buffett virtually gave up on IBM.
“Acquiring Red Hat makes IBM a credible player in the cloud now, this gives them an asset that looks forward and not backward”, said Bloomberg Intelligence analyst Anurag Rana said.
IBM will pay a share of $190 in the cash for Raleigh North Carolina-based Red Hat, confirmed an earlier Bloomberg News report. That’s a 63 percent premium over Red Hat’s closing price of $116.68 per share on Friday.
Rometty said, “ IBM paid a very fair price, this is a premium company if you look underneath, this is strong revenue growth, strong profit strong free cash flow. Armonk, New York-based IBM will continue to grow its dividend and neither company will cut jobs after the deal”.
“This is an acquisition for revenue growth, this is not for cost synergies”, she added.