>> IBM announcing a $34 billion deal to buy Red Hat, a software firm specializing in open-source and cloud computing. Red Hat shares soaring Monday at IBM's offer of a $190 a share, but IBM stocks slumped to a three-year low, as investors balked at the 63% price premium IBM was paying for Red Hat.
Reuters Breakingviews Editor, Rob Cyran.>> IBM buys them, what does it mean? They're paying such a gigantic price, 34 billion, that we did the calculations. And to earn an acceptable return on their investment, Red Hat would basically have to double its sales and have to cut its cost by about 40%.
Those are very, very hard things to do. It looks like they're just overpaying, basically. And there's another problem too, is that IBM has a corporate culture which is relatively buttoned-down and Red Hat is not. And so if you combine these two, the question is, will these two firms get together, and will they be able to work together?
And that's not certain by any means.>> The acquisition announced Sunday is by far IBM's biggest to date. And underscores CEO Ginni Rometty's efforts to expand the company's business away from legacy servers and position it to better compete with firms such as Amazon, Google parent Alphabet, and Microsoft, in the rapidly expanding cloud space.
In a statement, Rometty called the deal, quote, a game changer. IBM will become the world's number one hybrid cloud provider. The deal illustrating how older tech firms are using acquisitions to catch up with newer trends, gain scale, and fend off competition.