Comment by k_bx
7 years ago
What's not clear here is that why would one company, which is dong pretty well, better every year, would want to be sold to another company, which doesn't look well (from your own description), instead of just continuing growing and eventually "winning" the cloud market by themselves? Is that just because top Red Hat people wanted to cash out more quickly?
Maybe because IBM would have provided a superior price, and RedHat is a public company answerable to shareholders.
Let's take reality, RedHat is still a small player compared to Amazon, Microsoft or Google. They don't have the bandwidth to compete on all the additional hosted services offerings. By partnering with IBM, they get access to IBMs entire suite of enterprise customers and hosted products, making them a serious competitor to the 3 big players instead of being a "me too, cloud". They could make it big together, looking optimistically. But it's on IBM to not screw this up.
>> Maybe because IBM would have provided a superior price, and RedHat is a public company answerable to shareholders.
I think a lot of readers probably don't understand what that line means. Even if the C-suite at RedHat did not want to do this, they have no choice. Shareholders can riot and oust you(executives) for not taking what they consider to be the "best deal"(and this is one heck of a deal). Long story short, even if you don't want to sell - once the price is high enough, the shareholders will force you.
This makes a lot of sense, thank you!
They bought them for 136x earnings, for a mature company with $100s of millions, that's a pretty sweet multiple.
redhat must also have seen that their ability to grow will rely on a handful of clouds that may or mayn't continue to enable them on their platforms.
.. they probably though the price right now is better than what they would get in 5 years.
redhat was trading at around $120 last week and IBM announced "Red Hat for $190.00 per share in cash, representing a total enterprise value of approximately $34 billion."
That $120 was really high for redhat, who just crossed the $100/share price last year. (unless you count year 2000/dotcom-IPO-madness) RHT's market cap was previously $20B.
Note that IBM is buying every last Redhat share here, so of course it has to pay more than the price for "just one more" share.
That's not weird. It's a bit much as these things go, but 20-30% over the share price would not raise any eyebrows.
yeah it's not raising my eyebrows but I was trying to give the data to explain why an established and somewhat profitable company (like redhat) would sell to a player like IBM. It's just a lot of money to turn down!
Amazon, Microsoft, Google. Now that RedHat has to compete against all three, perhaps it felt that now was the time to cash out.
Because IBM vastly overpayed and there will not be another opportunity like that any time soon.