Summary
IBM to acquire Red Hat at $190/share, corresponding to an enterprise value of approximately $34 billion.
From a business perspective, the acquisition makes sense.
I give my opinion of the price of the transaction. And I check the solidity of the company to finance the deal.
IBM (IBM) and Red Hat (RHT) announced an agreement for IBM to acquire Red Hat in an all-cash transaction of $190/share. The deal, which corresponds to an enterprise value of about $34 billion, is expected to close by the second half of 2019.
From a business perspective, the acquisition makes sense. Both companies have recently extended a long-term partnership in the hybrid cloud area. With this transaction, IBM will strengthen its hybrid cloud offer for the enterprise.
IBM is buying Red Hat at a high price, though. The choice of an all-cash transaction is the best option for IBM. Considering the low share price, a stock offer would have been dilutive for shareholders. And the current low net debt combined with the strong free cash flow generation will maintain the debt at reasonable levels.
But management will have to profitably grow the cloud segment at a fast pace to justify the acquisition price.
