IBM bid may flush out other Red Hat suitors, Cowen says
Updated : 15:27
After IBM agreed a $34bn deal to buy cloud software company Red Hat , analysts at Cowen and Co said there is a reasonable possibility that other suitors could emerge.
The agreed price includes a "substantial premium" on the current valuation that might make it look "highly unlikely" that a superior bid could occur, Cowen said.
However, while details of the proposed transaction were not yet revealed, if the break-up fee does not present a massive impediment, Cowen analysts believe there would be other companies that would consider taking a hard look at Red Hat as a strategic target - most notably Cisco and Alphabet.
The analysts said Cisco, which continues to emphasise software and recurring revenue through both M&A and internal initiatives, and Alphabet, which has had mixed results with Google Cloud Platform, would both benefit from Red Hat's enterprise relationships and distribution.
Cowen also noted that Oracle, which has a server OS offering that has never found much market acceptance, could gain from adding a growth asset such as Red Hat, giving it a stronger hybrid cloud presence in its own right.
"At any rate, we look forward to learning more about the transaction from today's call and through subsequent filings," Cowen said in a note to clients on Monday, with a new $190 price target for Red Hat that reflects the takeout price and corresponds to 30 times 2019 free cash flow.
Elsewhere, Goldman Sachs said the acquisition would be "consistent with IBM's stated goal of expanding its reach across various elements of hybrid cloud infrastructure".