IBM is expecting to create enormous value for Big Blue with its newly acquired software company Red Hat. In an interview with CNBC on Monday, IBM Chairman and CEO Ginni Rometty said that the acquisition of Red Hat in a deal valued at $34 billion is the third largest technology deal in the U.S. history. Red Hat President and CEO Jim Whitehurst also joined the interview, whose company specializes in the most popular open-source software, Linux operating systems.
According to Rometty, the new acquisition isn’t just about the Red Hat’s business that provides 4% revenue growth to the company. It will also start boosting IBM’s gross margins and cash flow in first year, she added.
“The deal is about lifting all of IBM”, Rometty told Jim Cramer, the ‘Mad Money’ host. She also insisted that the company’s dividend, following the deal, is ‘more than safe’ and will continue expand due to financial flexibility.
After its third-quarter of the year, IBM was left with $15 billion in cash while its free cash flow reached $12 billion, as reported in CNBC news. Rometty said that the amount is ‘plenty’ to maintain the company’s dividend and continue to propel growth.
In the interview, Whitehurst said that the takeover will not only bring huge scale to Red Hat but also accelerate growth and opportunities for its workforce to enhance their career paths in addition to other benefits. Red Hat is passionate about open source and this will allow open source to be dominant platform going forward, he added.
While IBM has struggled years of revenue declines for its transition from computer making business to modern technologies such as the cloud and artificial intelligence, the deal will help the company to become world’s No.1 hybrid cloud provider.
Red Hat will represent a ‘$1 Trillion marketplace’ according to Rometty, it is going to be critical part of IBM’s future. The new acquisition marks IBM’s biggest deal ever where the company will pay $190 in cash for each share of Red Hat. On Monday, shares of IBM went down 4.13 percent after hitting a new 52-week low while Red Hat’s stock closed to $169.63, sending its shares to climb 45.38 percent.