IBM tips its hat. International Business Machines Corp. (IBM) placed a big bet on cloud company Red Hat Inc. (RHT) . Under the terms of the deal, Big Blue will purchase Red Hat for $34 billion, making it the largest acquisition in IBM's history. Red Hat will operate as a distinct unit within IBM's hybrid cloud division, the company said, and will be run by current head Jim Whitehurst.
"The acquisition of Red Hat is a game-changer. It changes everything about the cloud market," said IBM CEO Ginni Rometty. "IBM will become the world's No. 1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses."
But the mega-deal, which translates to $190 per outstanding share of Red Hat, is pressuring IBM's balance sheet, according to The Deal's Chris Nolter. Standard & Poor's lowered its issuer credit rating to 'A' from 'A+' and Moody's Investors Service put IBM on watch following the announcement of the all-cash bid.
"From a business perspective, the acquisition of Red Hat is the right move," David Tsui of S&P told Nolter. "When you ask the question about worth and pairing that with the price, that's always difficult to assess especially right now."
Shares of IBM fell 4.1% to $119.64, while Red Hat stock soared 45.4% to $169.63.
As analysts and investors assessed IBM's acquisition, M&A rumors abounded as to what company may be targeted next, according to Real Money's Kevin Curran, who came up with a list of potential targets. J.P. Morgan analyst Sterling Auty noted that the volume of M&A in software appears to be picking up, with over 70 transactions announced year-to-date, including IBM and Red Hat.
While it may be earnings season, with companies like General Electric Co. (GE) scheduled to report on Tuesday, many investors are speculating whether the Federal Reserve will halt interest rate increases as the U.S. stock market declines. But don't bet on that happening, according to TheStreet's Bradley Keoun, as Fed officials expect investors to adjust their holdings accordingly when the central bank raises rates.
Markets Today: U.S. equities fell amid a report that the U.S. could announce more tariffs on Chinese imports if the talks between Presidents Donald Trump and Xi Jinping fail to ease tensions, Bloomberg said. The Dow Jones Industrial Average lost all of its morning gains, ending down 245 points, or about 1%, to 24,442.92. The S&P 500 fell about 0.7% to 2,641.25 and the Nasdaq composite tumbled 1.6% to 7,050.29.
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