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IBM Stops Buybacks to Pay for Red Hat

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Re: IBM Stops Buybacks to Pay for Red Hat

#61

Post by cat199 »

unimployed wrote: post #15
SpicyLemonZest wrote: post #9

Earlier quoted context omitted.

It's hard for me to see why this dynamic would happen. What specific federal funds rate would make stock prices "supported by fundamentals" rather than "inflated", and why in your view can't the Fed just set that rate to avoid these problems?

Because a mix of globalization, technological financialization, and perverse incentives. The markets have become increasingly global to the point that there is never a shortage of investors or investment capital. However, profitable, low or no risk investment opportunities do not grow on trees nearly as plentifully. Due to an overabundant supply of investors with a high demand to seek profitable low or no risk invest…

> Due to an overabundant supply of investors with a high demand to seek profitable low or no risk investment opportunities to park their wealth for growth via interest, and a much lower supply of profitable low or no risk investment opportunities—the interest rates to park your wealth must fall.

Or, lowering interest rates creates overabundant demand for low/no risk investment opportunities...

while I agree with your analysis, it's only valid for 1 side of the coin -

similarly, this all also 'nicely corresponds' with the rise of supply-side / trickle-down economics as well..

as for inflation: is not a growth in wage disparity just as good of a measure of relative inflation over time as some small and continually modified basket of consumer goods?

Re: IBM Stops Buybacks to Pay for Red Hat

#62

Post by rbavocadotree »

kgwgk wrote: post #60
crumpets wrote: post #56

Earlier quoted context omitted.

None of this is how this stuff works. >Huge amounts of cheap debt allow companies to buy lots of stock, driving up prices. Companies don't use debt to buy stock. Taking on the debt to do that would depress the stock price the same amount that the buying would attempt to appreciate it. >All of this causes massive asset price inflation. This would be reflected in the CPI. >Stock prices are detached from actual revenue…

> Companies don't use debt to buy stock. Sure they do. Edit: https://www.bloomberg.com/news/articles/2019-08-08/companies... By the way, the claim “Taking on the debt to do that would depress the stock price“ doesn’t seem correct. The influence of leverage on valuation is complex and depends on the cost of debt and equity, tax shielding considerations, the increase in risk due to the financial leverage... and essenti…

All the time in fact. There's been $5 trillion in stock buybacks by US companies in the last decade. Most of it through leveraged buybacks.

It often makes more sense to use debt than cash for buybacks.

Re: IBM Stops Buybacks to Pay for Red Hat

#63

Post by kgwgk »

criddell wrote: post #20
gridlockd wrote: post #5

What laypeople need to realize is the following relation: Low federal funds rates allow companies to acquire huge amounts of debt very cheaply. Huge amounts of cheap debt allow companies to buy lots of stock, driving up prices. Stock prices inflated in such a way are not supported by fundamentals and so the downside risk greatly increases. Once the downside eventually materializes, markets drop violently. At first, t…

Are there buyback limits? Is it possible that company could buy all of it's stock?

Not all of it, I think. (At least I don’t think reducing outstanding shares to 0 is a well-defined process, I could be wrong.)

But theoretically if a company do keep buying its own shares it can reduce their number to the point where the company is no longer required to be “public” and the shares can be delisted. However the important number is how many shareholders the company has, not how many shares (but obviously a company with 300 shares cannot have more than 300 shareholders).

I don’t know if that has ever happened. Reducing the numbers of shares (and shareholders) can also be done be reverse splitting. For example a company that is doing so badly that the share price goes to zero and regularly do inverse splits (making one $5 share from 100 $0.05 shares) will end up with a handful of shares. Or a company which is not failing may try to get rid of minority shareholders by doing reverse splits (if you don’t have enough shares to get the new one you get cash instead).

The usual way to reduce the number of shareholders is for someone to make a tender offer. And in that case there are rules about what happens with those who didn’t choose to sell. That’s what happened with Dell, that another comment mentioned, which was bought by Silver Lake.

https://www.sec.gov/fast-answers/answersgoprivhtm.html

Re: IBM Stops Buybacks to Pay for Red Hat

#64

Post by ethbro »

temac wrote: post #58
koolba wrote: post #28

Earlier quoted context omitted.

But the hosts no longer need the full distro stack traditionally provided by a RHEL. Just a thin enough veneer for a container runtime with live kernel updates. Maybe there’s a market for intra container licenses but it’s a harder sell as even there the goal is to go slim.

So you remove all the traditional services from the OS "definition", and roll your owns (in one particular context). Don't worry, soon enough some people will be tired of reinventing the wheel each in their own corner, and what you call "a market for intra container licenses" (potentially in the form of free commoditized open-source licensed components -- but that is not really new for that comparison, because truly…

"ReDevelOps" is an accurate buzzword for a lot of the market these days.

Re: IBM Stops Buybacks to Pay for Red Hat

#65

Post by mathattack »

kgwgk wrote: post #51
mathattack wrote: post #37

A dying company trying to extend their “squeeze your base” policy to another vendor. I think they overpaid for RedHat. After a particularly painful audit at my Fortune 500, we kicked out RedHat. We spend more time talking to IBMs auditors than we do to their Salespeople and engineers. This merger seems like the modern version of HP and Compaq. The only winners are the shareholders who bolt early. Customers, employees…

Late shareholders didn’t lose anything. (Assuming you mean RedHat’s shareholders, because if you mean IBM’s then the reference to customers and employees makes less sense.)

I mean anyone still holding post-merger.

Re: IBM Stops Buybacks to Pay for Red Hat

#66

Post by mathattack »

kgwgk wrote: post #49
riffraff wrote: post #43

Earlier quoted context omitted.

Forgive my ignorance,but what is an IBM auditor?

The person who comes to check that you’re using their products according to the licensing agreements and what you’re paying for, I imagine.

And the burden is on you to prove that you’re not using it. (And then their Watson salespeople wonder why you won’t take their calls)

Re: IBM Stops Buybacks to Pay for Red Hat

#67

Post by hodgesrm »

raesene9 wrote: post #3

Interesting. This seems like a big bet for IBM given that they used over 70% of their cash pile to buy Redhat. That said the picture painted by this article is that doing nothing wasn't an option, declining revenues is not a good picture at a time when the competition are posting record numbers...

> If all goes according to plan, IBM forecasts a sales bump of 2% over the next 5 years, but it will take 2 years before Red Hat contributes to earnings.

These are not good projections. It's really hard to understand how RedHat acquisition makes any financial sense whatsoever if this is the actual effect. RH annual revenues were $3.36B for FY2019. [1] That's a tiny fraction of IBM's current revenue.

[1] https://investors.redhat.com/news-and-events/press-releases/...

Re: IBM Stops Buybacks to Pay for Red Hat

#68

Post by ethbro »

sys_64738 wrote: post #52
pm90 wrote: post #19

Earlier quoted context omitted.

Red Hat is more than its products. The engineering talent at the company is astounding. I remain skeptical that they will remain for long though.

The talented ones usually jump ship sooner than later. Many will be offended to be working for IBM now. Those that remain are the others.

I had a friend who worked at a startup which was acquired by IBM.

They managed to piss everyone off about 6 months after inserting IBM managers.

Typical "You're a startup. We're IBM. Our way has stood the test of time, so we'll help you out by implementing it here" stuff.

And I don't argue IBM has learned a lot of incredible business and management lessons over the years.

But you can't give a perfect playbook to someone of average intelligence, tell them they're the smartest person in the room because of the playbook, then turn them loose with other smart people and expect good things to happen.

Re: IBM Stops Buybacks to Pay for Red Hat

#70

Post by kgwgk »

criddell wrote: post #55
Jabbles wrote: post #27

Earlier quoted context omitted.

This is known as "going private". https://www.investopedia.com/terms/g/going-private.asp One example is Dell: https://en.wikipedia.org/wiki/Dell#2013_buyout Also see Elon Musk's infamous tweet about Tesla: https://en.wikipedia.org/wiki/Tesla,_Inc.#Securities_Litigat...

So a company that has gone private isn't owned by another entity? There are no external stakeholders?

Silver Lake (a private equity firm) took Dell private in 2013.

Interestingly, the company didn’t use buybacks to become private but it did use buybacks to become public again last year [1]. It was done by buying back some piece of its business that remained traded in the stock exchange following the acquisition of EMC when Dell was private [2].

[1] https://www.techspot.com/news/77848-dell-about-go-public-sec...

[2] https://www.bloomberg.com/opinion/articles/2015-10-13/dell-w...

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