In what can only be described as a desperation move, IBM announced that it would acquire Linux distributor Red Hat for a whopping $34 billion, its biggest purchase ever, as the company scrambles to catch up to the competition and boost its flagging cloud sales. Still hurting from its Q3 earnings, which sent its stock tumbling to the lowest level since 2010 after Wall Street was disappointed by yet another quarter of declining revenue...
... IBM will pay $190 for the Raleigh, NC-based Red Hat, a 63% premium to the company's stock price, which closed at $116.68 on Friday, and down 3% on the year.
In the statement, IBM CEO Ginni Rometty said that "the acquisition of Red Hat is a game-changer. It changes everything about the cloud market," but what the acquisition really means is that the company has thrown in the towel on organic growth (or lack thereof) and years of accounting gimmicks and attempts to paint lipstick on a pig with the help of ever lower tax rates and pro forma addbacks, and instead will now "kitchen sink" its endless income statement troubles and non-GAAP adjustments in the form of massive purchase accounting tricks for the next several years.
While Rometty has been pushing hard to transition the 107-year-old company into modern business such as the cloud, AI and security software, the company's recent improvements had been largely from IBM’s legacy mainframe business, rather than its so-called strategic imperatives. Meanwhile, revenues have continued the shrink and after a brief rebound, sales dipped once again this quarter, after an unprecedented period of 22 consecutive declines starting in 2012, when Rometty took over as CEO.
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