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IBM Closes Acquisition of Red Hat for $34B

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

#101

Post by _ea1k »

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…

Free cash flow may be the more important metric for this purpose. I believe it is closer to $1B/year and presumably growing?

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

#102

Post by duxup »

asdf21 wrote: post #94
duxup wrote: post #71

Earlier quoted context omitted.

IBM has been stumbling around trying to find its feet again for a while now. It seems possible that despite the advantages you cite that IBM won't know how to use them. Word from the inside is that IBM's own "sales machine" selling Watson for what it really wasn't ... was a great deal of the problem with Watson. The skepticism about IBM is rooted in their recent history.

Yeah, whatever happened to Watson? I haven't really heard much in a couple years now..

Word from the inside is that to successfully utilize Watson a lot of careful work has to be done with managing and formatting data... and to some extent experimentation for any given solution. This requires a lot of time from IBM, and a lot of time / resources from the company who buys it.

However, Watson was sold and advertised as more of a drop in solution with a lot promised of results that Watson has never produced.

Accordingly the massive costs incurred by customers were unexpected and the processes to do it right rushed, customer expectations were not met (quite the opposite) and the results were often quite poor.

IBM seems to have backed away from all those grand claims.

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

#103

Post by hansendc »

bmicklea wrote: post #32
yitchelle wrote: post #14

Does this acquisition open up the market for a Linux company to move into the Linux enterprise space? Maybe Ubuntu could pivot into this space.

Red Hat's business model and open culture isn't changing. We will remain independent and I look at this as an opportunity for more people to engage with our stellar support and field teams. For some context you can read the email our CEO sent out to the whole company today: https://www.redhat.com/en/blog/jim-whitehurst-email-red-hatt...

Ex-IBMer here...

I'd really suggest finding one of your colleagues that's seen IBM's track record with acquisitions and pick their brain a bit. They'll have much more relevant information for you than your old CEO.

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

#104

Post by jcampbell1 »

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…

You need to add back income taxes of about $80M, so they are only $120M short. Interest expense is pre-tax.

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

#105

Post by dreamcompiler »

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…

So far Microsoft hasn't ruined Github. But then Microsoft has been getting smarter over the last decade while IBM has just gotten dumber and dumber.

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

#106

Post by jrockway »

japanoise wrote: post #100
spion wrote: post #85

Earlier quoted context omitted.

Youtube/Google?

Profitable, maybe, but better than before? No. YouTube's culture and ux have slowly been killed by Google over the years, and the platform is becoming more bland and homogenized as we speak.

I doubt YouTube would have survived the lawsuits that were brewing before they were purchased. And then precedent would have been set against all video sharing sites, so the Internet would have been significantly worse off and streaming and independent content production would have been set back by a decade. I think the Google acquisition was a good thing, even if it means there are ads on videos unless you pay $5/month to remove them.

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

#107

Post by coliveira »

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…

But IBM bought RH only because they believed that the company has growth ahead. If it grows a little more than 1% a year (which should be easy) that will be enough to break even. I think that was a smart move by IBM.

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

#108

Post by axplusb »

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…

Red Hat net income is growing pretty consistently though [0].

With this price for debt, IBM could be cash-flow positive on this deal within a couple of years even without any big synergy, just by the simple effect of cumulated growth on (net) income.

[0] https://www.macrotrends.net/stocks/charts/RHT/red-hat/net-in...

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

#109

Post by ScottFree »

topkai22 wrote: post #99
jackhack wrote: post #75

Earlier quoted context omitted.

I usually put it this way: "Name one company that was better after a merger." I've yet to find any affirmative answer. It's good to have hope, but it's not good to be unrealistic.

Pixar / Disney Marvel / Disney Facebook / Instagram EBay/PayPal Exxon/Mobil Massive numbers of banking / pharma/ industrial mergers. I will agree though that I can't think of a tech sector merger at this scale that worked out really well. They seem to work best at the sub $2B level. Although LinkedIn/Microsoft is looking OK.

What you don't hear about are the dozens of companies Disney has acquired then shut down over the years. Playdom. Tapulous. Junction Point Studios. Fall line Studios. Wideload Games. Propaganda Games. Black Rock Studios.

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

#110

Post by jedimastert »

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.

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