IBM Stock Drops in Pre-Market Trading on News of $33B Red Hat Acquisition

Stock Market

Shares of IBM (NYSE:IBM) were down more than 5% in pre-market trading this morning after the company agreed to buy software provider Red Hat (NYSE:RHT) for about $33 billion. IBM stock lost 3.3% last week, compared to a 2% decline in the S&P 500 Index.

The deal will be IBM’s biggest acquisition ever as chief executive Ginni Rometty seeks to reinvigorate the tech giant that’s beset by cloud computing rivals (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT).

She told the Wall Street Journal that the market is moving into its next era and customers will want to work with multiple cloud providers. “That should boost interest in so-called hybrid services in which companies run programs that use computing resources from their own servers and web services from IBM and others at the same time,” she said, according to the Journal.

The move comes after IBM disappointed investors earlier this month with news that revenue dipped 2.1% in the latest quarter. For the full year, IBM is expected to book $79.8 billion in sales.

IBM will pay $190 a share for RHT stock, which closed Friday at $116.68. IBM plans to use cash and debt to make the acquisition, according to media reports. At the end of the third quarter, it held $14.7 billion in cash.

Earlier this month, InvestorPlace contributor Bret Kenwell chided Big Blue for spending money on stock buybacks rather than M&A opportunities. “Had it made a series of strategic acquisitions rather than dump billions upon billions of dollars into its buyback plan, investors would be much more forgiving to the name now,” he wrote.

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