IBM Rolls The Dice With A Purchase Of Red Hat Inc. For $34 Billion

IBM (IBM) is in the headlines once again, going all in at the poker table. The company is rolling the dice and proposing to purchase Red Hat Inc. (RHT) for US $34 billion.

Red Hat describe themselves as a:

“Provider of open source software solutions to develop and offer storage technologies, virtualization, cloud, mobile, operating system, management, and middleware to various enterprises worldwide. It offers infrastructure-related solutions, such as Red Hat Enterprise Linux, an operating system platform that runs on hardware for use in hybrid cloud environments; Red Hat Enterprise Virtualization, a software solution that allows customers to utilize and manage a common hardware infrastructure to run multiple operating systems and applications; and Red Hat Satellite, a system management offering that helps to deploy, scale, and manage in hybrid cloud environments. ”  Yahoo Finance

Most analysts agree the move leaves IBM in a poor financial situation. IBM will be short on cash and will be wishing on the next shooting star, hoping the CEO made the right decision. Its win or lose for Big Blue, the CEO Ginni Rometty has all the chips on the table. She’s hoping the combination of blockchain patents owned by IBM and their new found presence in  cloud computing will ring the bell and answer her prayers with a solid revenue source and an end to the 7 years of negative earnings under her leadership.

A sinister dark cloud hangs over this deal casting shadows of uncertainty. Red Hat’s stock price was last quoted at $172.24, well below the $190 IBM has proposed to pay to own the company. Analysts are skeptical the deal will happen at the inflated price of $190 a share. Moreover whether the deal happens or not IBM is obligated to fork over $1billion to Red Hat.

Ms. Rometty claims the deal will make IBM the number 1 hybrid cloud provider. A hybrid cloud consists of cloud data storage and computing capabilities. Rometty has bet her continuance as IBM’s CEO on the combination of blockchain technology combined with hybrid cloud services. Investors and analysts are doubtful this combination can put IBM back in the black.

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