Shares of open-source software developer Red Hat (NYSE:RHT) rose 25.9% in October of 2018, according to data from S&P Global Market Intelligence. No mystery here: The stock jumped when IT giant IBM (NYSE:IBM) announced that it will acquire Red Hat in a $34 billion deal.
Red Hat's share prices had been trending downward for most of October, dipping as much as 14% below September's final quote, when Big Blue stepped in. The all-cash offer is worth $190 per share, expected to close in the second half of next year, and still requires shareholder approval as well as a few regulatory sign-offs. The stock soared as much as 60% higher the next day. IBM's shares fell 3% on the news.
The immediate market reactions added $9 billion to Red Hat's market value while shaving $3.4 billion off of IBM's, which works out to something like $5.5 billion of net value added that day.
IBM wants Red Hat for its prowess in cloud-computing solutions. In particular, the company hopes to build a market-leading presence in the hybrid cloud segment, where customers mix and match off-site cloud servers with cloud hosts under lock and key in their own data centers. The companies claim that a mere 20% of the global business workloads that could and should move to the cloud have made the transition so far, leaving lots of room for further growth. Staking a strong claim to that market in these formative years could pay off big for IBM in a few years, and that's what the Red Hat deal is all about.
As for us Red Hat investors, the stock still trades 9% below the proposed buyout price.