Categories Earnings, Technology, U.S. Markets News

Red Hat shareholders give green signal for acquisition by IBM

The closely-followed acquisition of software company Red Hat (RHT) by tech giant IBM (IBM) moved closer to completion after the former’s shareholders overwhelmingly approved the deal Wednesday. More than 80% of the 176-million shareholders voted in favor of the transaction, which has already been ratified by Red Hat’s board of directors.

In October last year, the Raleigh-based company signed a definitive agreement to be acquired by IBM for $34 billion – one of the biggest deals in the tech sector in recent times. The companies expect the transaction to complete in the second half of 2019.

As per the terms of the transaction, Jim Whitehurst, Red Hat’s chief executive officer, will join IBM’s leadership team. By acquiring Red Hat, IBM intends to strengthen its foothold in the cloud computing market and return to the growth path. Of late, profitability has been affected by the ongoing slump in the PC market and IBM’s overdependence on its low-margin core business.

As per the terms of the transaction, Jim Whitehurst, Red Hat’s chief executive officer, will join IBM’s leadership team

On completion of the transaction, Red Hat will become a part of the Big Blue’s Hybrid Cloud division and will start contributing to cash flow and gross margin within twelve months. Red Hat’s software development prowess will give IBM the strength to compete effectively with Amazon (AMZN) and Microsoft (MSFT) in the areas of cybersecurity and cloud computing.

Strong subscription growth drives up Red Hat’s Q3 earnings

In the third quarter, Red Hat’s earnings and revenues rose sharply aided by a further strong subscription growth and stable demand for its hybrid cloud technology solutions.

Continuing the turnaround that started a few months ago, Red Hat shares maintained the uptrend this week and traded slightly higher Wednesday. IBM’s stock, which has been struggling to recover from the recent multi-year lows, traded broadly flat throughout the session.

 

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