International Business Machines (IBM) stocks dropped to their lowest level in nine years on Monday, after the group began promising an equivalent of nearly a third of their market value to Red Hat (RHT) on a $ 34 billion deal with the move to the $ 1 trillion cloud computing market, however, raises questions about the price the Linux distributor is willing to pay.
The stock has also been pressured by Moody's Investors Service to review the credit rating of IBM A1's possible downgrade, citing a "significant increase in leverage" … and a "departure from the historical takeover philosophy IBM to make small acquisitions that limit the risk of integration. "
IBM pays $ 1
"We believe that Red Hat is a trusted open source leader with a large customer base being a share gainer in its traditional categories (server operating systems, application server markets, middleware) and in very strong secular trends Data center re-architecture, cloud computing, virtualization and big data, "wrote analysts at Oppenheimer. "We question IBM's ability to leverage Red Hat's incremental value, taking into account its M & A track record and mixed stature in the developer community."
IBM shares were down about 3% on pre-trade, suggesting an opening The price per share was $ 121,291, the lowest since November 2009, and a move that has increased its decline since the start of the year to 21% and the group in Armonk, New York, valued at just under 110 billion US dollars. Red Hat's market capitalization, based on $ 190 per share, is $ 33 billion, and its shares were 51% higher at $ 176.50. This indicates that investors are pricing in some execution risk that still needs to be approved by the shareholders. 19659002] Rometty told CNBC Monday that its $ 190 offer was a "fair price" for Red Hat, reiterating its belief that they would integrate the company, generate profits and continue to expand IBM's dividend, despite the $ 33 billion it raised for Raleigh could, North Carolina based group.
The deal is expected to result in free cash flow and gross margin within 12 months, said IBM, accelerating revenue growth and supporting a solid and growing dividend. However, the Group has announced that it will suspend planned share buybacks in 2020 and 2021 as a result of the acquisition. IBM said it remains "committed to maintaining strong investment grade credit ratings" and is aiming for a leverage profile that is consistent with a "middle to high single A" class.
Earlier this month, IBM reported weaker revenues than expected in the third quarter Cloud computer shipments slowed and a stronger US dollar weighed on international sales, complicating Rometty's patchy turnaround plans.
IBM announced that sales in the three months to September had fallen by 2.1% from the same period last year to $ 18.8 billion. Street's $ 19.1 billion forecasts were not met as cloud sales reached about half of the previous quarter. With sales of $ 3.42, sales were down, but sales in IBM's systems division slowed, where sales were down sharply from the previous quarter and sales of cognitive software including the Watson brand fell 6% to $ 4.15 billion. Technology Services & Cloud Platforms declined 2% to $ 8.3 billion.
IBM's gross margin was 49.5% in the September quarter, essentially unchanged year-on-year, and the best value the group has achieved in three years. According to CFO Jim Kavanaugh, and maintained at its full-year non-GAAP earnings estimates of $ 13.80 per share on free cash flow generation of approximately $ 12 billion.
Last, Linux operating system distributor reported weaker than expected revenues for its second quarter, which ended in August, said sales for the three months to November would likely fall below forecasts with a range of 848-856 million US Dollars fall. However, CEO Whitehurst insisted in an interview with TheStreet, and in the company's earnings report that some one-off events are to blame, and that his company's competitive position has not changed.