The $34 billion price tag apparently caused some heartburn as Big Blue shares dropped to a two-year low before rallying a bit, according to Investors Business Daily. The price is some 60 percent above the $20 billion value of Red Hat (NYSE: RHT) at Friday’s close. As trading neared the close Monday, IBM shares were down 5 percent. They ended up down 4.13 percent.
Red Hat shares, meanwhile, soared more than 45 percent to just under $170 a share in late-morning trading. Just before the close, Red Hat traded up 46 percent at just over $170. They closed at $169.63, up some 46 percent.
Adding to downward pressure on IBM’s stock is a “review” of the company’s A1 credit rating by Moody’s Investors Service. TheStreet,com reported that Moody’s made the move “citing a ‘substantial increase in leverage’ as well as the deal represented a “departure from IBM’s historical acquisition philosophy of making small, tuck-in acquisitions that limit integration risk.”
IBM (NYSE: IBM) Chair and CEO Ginni Rometty went on CNBC along with Red Hat CEO Jim Whitehurst to defend the deal.
“I don’t think the world realizes that Linux is the number one platform,” she said on CNBC’s Squawk Box. “This is about lifting all of IBM.”
The acquisition price is the biggest IBM has ever paid for a company.
Rometty said the acquisition improves IBM’s standing as a player in the rapidly growing cloud computing market.
“For us, it’s all about resetting the cloud landscape” to become the “number one hybrid cloud provider,” Rometty said, part of her strategy to make IBM a “cognitive and cloud company.
Whitehurst told Red Hat employees on Sunday that the company will remain a unique entity within IBM and that he will report directly to Rometty.
On CNBC, Whitehurst noted “We will [also] remain distinct because we want our customers to understand that Red Hat coming in is a neutral sell.”
He also sought to reduce any speculation that he might leave the merged companies.
“I’m in this for the long run.,” the 51-year-old executive said.
“I’m young. I plan to to be here for the rest of my career.”
Red Hat is based in Raleigh.
IBM operates a large campus in RTP and employs several thousand people across North Carolina.
