IBM Closes Acquisition of Red Hat for $34B • Hacker News Board

Re: IBM Closes Acquisition of Red Hat for $34B

#121

Post by vpribish » Tue, Jul 09, 2019, 3:38 PM UTC

sailingparrot wrote: post #115

tontonius wrote: post #84

So IBM buys Red Hat for $34B, of which $20B are borrowed monies. The debt is priced at 1.05 percentage points above Treasury yield rate [1] which would be somewhere around 3.5% which puts interest on bond debt at ~$700m every year. Now consider that Red Hat had a net income of $433m. Even if they reach $500 this year, Big Blue will still be $200m short, every year. At the moment, IBM is trading down at -0.5% on an ot…

> Just from these numbers we can conclude that IBM is seeing some pretty significant synergies in the purchase that the market isn't. Or there was basically very little chance that the acquisition wouldn't go through, and since we have known about it for months, it is already priced in the current stock value of IBM, so today's trading would be mostly unrelated and not representative of what investors think about the…

exactly. the impact from the deal mostly happened at its announcement October 29, 2018 when IBM fell about 5% on the news.

Re: IBM Closes Acquisition of Red Hat for $34B

#122

Post by Bartweiss » Tue, Jul 09, 2019, 3:39 PM UTC

sailingparrot wrote: post #115

tontonius wrote: post #84

So IBM buys Red Hat for $34B, of which $20B are borrowed monies. The debt is priced at 1.05 percentage points above Treasury yield rate [1] which would be somewhere around 3.5% which puts interest on bond debt at ~$700m every year. Now consider that Red Hat had a net income of $433m. Even if they reach $500 this year, Big Blue will still be $200m short, every year. At the moment, IBM is trading down at -0.5% on an ot…

> Just from these numbers we can conclude that IBM is seeing some pretty significant synergies in the purchase that the market isn't. Or there was basically very little chance that the acquisition wouldn't go through, and since we have known about it for months, it is already priced in the current stock value of IBM, so today's trading would be mostly unrelated and not representative of what investors think about the…

The price/interest/profit numbers are interesting, but this is definitely a good point too. Short-term shifts in the price of IBM aren't going to have much to do with this.

Re: IBM Closes Acquisition of Red Hat for $34B

#123

Post by bmicklea » Tue, Jul 09, 2019, 3:45 PM UTC

bloopernova wrote: post #68

bmicklea wrote: post #34

Earlier quoted context omitted.

I respectfully disagree - I'm a Red Hatter so you can take that for what it's worth. To me the 34B buys IBM the real estate in the open hybrid cloud market which Red Hat has built up in the last 5 years. That is part of a large and rapidly growing market. If IBM interferes with Red Hat they will likely squander the value of what we've built. If they foster what Red Hat did to win that critical ground then their 34B c…

I certainly don't want to argue or appear confrontational, but wanted to ask you this: Have there ever been any situations where the acquisition of a smaller company by a larger one has resulted in the smaller company remaining independent? Or has there been any positives for companies like Red Hat when they get bought? Usually I hear or read the positive-yet-bland press release talking about how wonderful this is, a…

At the risk of opening up another debate I'd say that GitHub currently looks to be doing better (more releases, more enterprise sales) after Microsoft's purchase than before. I also see them as a model of how to keep a distinct culture alive and grow it inside a larger entity. If GitHub can do it I think Red Hat can too. But only time will tell. Everything at this stage is some form of speculation.

Re: IBM Closes Acquisition of Red Hat for $34B

#124

Post by bmicklea » Tue, Jul 09, 2019, 3:47 PM UTC

vikramkr wrote: post #52

Hopefully this helps validate the red hat model to spur more investment into the space and create a new crop of competitors to fill the void after IBM ruins red hat.

I really hope so too. To me this is a huge signal that open source has won. That alone is exciting.

Re: IBM Closes Acquisition of Red Hat for $34B

#125

Post by jedberg » Tue, Jul 09, 2019, 3:48 PM UTC

tontonius wrote: post #84

So IBM buys Red Hat for $34B, of which $20B are borrowed monies. The debt is priced at 1.05 percentage points above Treasury yield rate [1] which would be somewhere around 3.5% which puts interest on bond debt at ~$700m every year. Now consider that Red Hat had a net income of $433m. Even if they reach $500 this year, Big Blue will still be $200m short, every year. At the moment, IBM is trading down at -0.5% on an ot…

The acquisition was most likely already priced in, but I think the synergy IBM is hoping for is that they are really really good at selling to the enterprise. They have one of the most successful enterprise technology sales teams in the world. I suspect that just making RedHat's enterprise sales more efficient will be enough to boost sales.

Re: IBM Closes Acquisition of Red Hat for $34B

#126

Post by marcosdumay » Tue, Jul 09, 2019, 3:48 PM UTC

infraCode wrote: post #113

i'm just a lurker and i have a lot of respects for this community but why some of you acting like somehow RedHat is not going to make money anymore after IBM bought them. RedHat already make billion doing what they do now. Why would that change? IBM is basically a consulting company and adding RedHat is more than a perfect match since RedHat main business is selling supports. this thread just wow.

Both companies have very different, even incompatible cultures. And it's not part of IBM culture to buy a company and not integrate it.

Specially, IBM is used to much fatter margins than RH's market allows.

Re: IBM Closes Acquisition of Red Hat for $34B

#127

Post by iNate2000 » Tue, Jul 09, 2019, 3:58 PM UTC

jedimastert wrote: post #110

tontonius wrote: post #84

So IBM buys Red Hat for $34B, of which $20B are borrowed monies. The debt is priced at 1.05 percentage points above Treasury yield rate [1] which would be somewhere around 3.5% which puts interest on bond debt at ~$700m every year. Now consider that Red Hat had a net income of $433m. Even if they reach $500 this year, Big Blue will still be $200m short, every year. At the moment, IBM is trading down at -0.5% on an ot…

I like your analysis. One thing that may be missing is how much money flows between them.

Like, existing deals, you mean?

Re: IBM Closes Acquisition of Red Hat for $34B

#128

Post by mastax » Tue, Jul 09, 2019, 3:58 PM UTC

bloopernova wrote: post #68

bmicklea wrote: post #34

Earlier quoted context omitted.

I respectfully disagree - I'm a Red Hatter so you can take that for what it's worth. To me the 34B buys IBM the real estate in the open hybrid cloud market which Red Hat has built up in the last 5 years. That is part of a large and rapidly growing market. If IBM interferes with Red Hat they will likely squander the value of what we've built. If they foster what Red Hat did to win that critical ground then their 34B c…

I certainly don't want to argue or appear confrontational, but wanted to ask you this: Have there ever been any situations where the acquisition of a smaller company by a larger one has resulted in the smaller company remaining independent? Or has there been any positives for companies like Red Hat when they get bought? Usually I hear or read the positive-yet-bland press release talking about how wonderful this is, a…

I'm also not optimistic, but I do expect that IBM leadership can understand a balance sheet. Red Hat has almost no IP, given the nature of open source development. They have a few billion in assets [0], tack on a few more for existing client relationships, brand recognition, and future revenues. $34B is a massive premium over that, so what is IBM buying? IBM's people and processes have failed to develop successful cloud strategy, and not for lack of trying. Red Hat's people and processes have succeeded, so presumably that's what they're paying all that money for. I'm hoping it's obvious to IBM that they shouldn't meddle and squander what they've bought.

[0]: https://investors.redhat.com/financial-information/financial...

Re: IBM Closes Acquisition of Red Hat for $34B

#129

Post by mixmastamyk » Tue, Jul 09, 2019, 4:00 PM UTC

bloopernova wrote: post #68

bmicklea wrote: post #34

Earlier quoted context omitted.

I respectfully disagree - I'm a Red Hatter so you can take that for what it's worth. To me the 34B buys IBM the real estate in the open hybrid cloud market which Red Hat has built up in the last 5 years. That is part of a large and rapidly growing market. If IBM interferes with Red Hat they will likely squander the value of what we've built. If they foster what Red Hat did to win that critical ground then their 34B c…

I certainly don't want to argue or appear confrontational, but wanted to ask you this: Have there ever been any situations where the acquisition of a smaller company by a larger one has resulted in the smaller company remaining independent? Or has there been any positives for companies like Red Hat when they get bought? Usually I hear or read the positive-yet-bland press release talking about how wonderful this is, a…

> Red Hat is a huge cornerstone

Indeed since in another thread recently, folks pointed out that RH had taken over core functions, such as systemd, pulseaudio, dbus, gnome, wayland, significant share of kernel, etc.

Re: IBM Closes Acquisition of Red Hat for $34B

#130

Post by pmoriarty » Tue, Jul 09, 2019, 4:04 PM UTC

devonkim wrote: post #86

voidfunc wrote: post #27

This is a great move for both companies. The doom and gloom in this thread is depressing. RedHat gets access to IBMs massive sales machine and IBM picks up a number of key technologies. Win-win.

The problem with any M&A is no different than what happens in marriages - do the two blend together, does one dominate the other's culture, etc? The truth is that IBM's history (and to be fair, almost all 10-figure+ market cap tech companies) even with multi-billion dollar acquisitions (that's almost all they do with the exception of Google and Apple I can think off the top of my head) is that the current company's i…

"the current company's inertia dominates whoever they acquire and the internal sales-driven culture in developed markets supersedes anything resembling engineering related from a company they acquire"

What engineering-related innovation has RedHat come up with?

As a Linux sysadmin I've noticed that all of the companies I've worked at that have used RedHat chose it not because it was innovative but because:

1 - they could get a support contract

2 - because RH dominated the commercial Linux space

3 - because RH was the OS the admins knew and both wanted to leverage that knowledge and keep their knowledge current for continuing work with this market leader in future jobs (as that was likely the OS they'd use in most jobs to come)

Most of the "innovations" I can attribute to RH have been widely seen in the sysadmin community as negative. Innovations such as systemd, Network Manager, and selinux. The latter two we've often turned off because they caused so many problems. Unfortunately, systemd was too integrated in to the OS to be able to turn off.

There's RPM, but that was created decades ago when RH was not the company it was now, and it's just one packaging format out of many, and not one that IBM even needs to spend billions to buy. The only other positive tech that RH owns that I can think of is Ansible. But they didn't create it. They bought it.

What RH-originated innovations should we impressed by?