Monday, October 29, 2018

IBM: Bold Move

IBM agreed to pay a 63% premium for Red Hat to become a leader in hybrid cloud.
The deal is accretive to free cash flows starting around 2020.
The $34 billion of additional net debt adds risk to the story.
The transformative deal could be the bold move to change the perception of the stock trading at only 8.5x '19 earnings estimates.
The market has long complained that IBM (IBM) hasn't made a bold move to transform the company. The move to acquire Red Hat (RHT) was the move that the market always wanted, but no doubt views as highly risky now. The deal premium adds more risk than justified but IBM might just pull the company out of this tailspin with this bold move.
Read the full article on Seeking Alpha. 

Disclosure: Long IBM. Please review the disclaimer page for more details. 

 

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