I have few questions in light of recent news IBM to buy Red Hat

  1. Why would Red Hat's price be going down? Is it because some people/organisations had the stock on hold and decided to sell it instead of waiting for the merger?

  2. How likely is this offer to go through at $190? Given that this is an official press release, is it likely that the merge will occur at that price or could it be lower?

  3. What will happen if you don't sell Red Hat shares to IBM. Would they be worthless ?


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  1. What chart are you looking at that Red Hat stock is declining? The acquisition was announced over the weekend and the company shares saw a massive increase in the face of yet another broad market sell off. Typically, the company being acquired has a price bump and the acquiring company takes a hit; which is what happened (very unsurprisingly) here.

  2. I'd say it's very likely to transact at $190, I doubt this is going to face too much regulatory friction.

  3. You'd have to look at the terms of the acquisition which don't appear to exist yet. The best that exists currently is the press release which simply indicates a valuation of $34B paid by IBM via cash and debt. Probably your shares of RHT will be converted to IBM based on some conversion factor which will be determined when the money is actually changing hands. The issue is what happens to partial shares (IE you have 12 RHT shares that convert to IBM shares at a factor of 1.6, which would get you 19.2 IBM shares. Is the 0.2 share rounded up or cashed out?) Sometimes shareholders are given the option to accept cash or take shares. You'll have to look at the terms of the offer, but in no situation will your RHT shares become worthless. IBM is buying the company from YOU, you get paid. You can vote to decline the offer, but ultimately if the offer is accepted by enough shareholders you're along for the ride.


There may be other reasons (I haven't looked at the deal in-depth) but there is still some uncertainty and time value involved. The deal is still subject to RedHat shareholder and regulatory approval, so there is a chance that the deal could get delayed or even cancelled.

Plus, the deal is "expected to close in the latter half of 2019", which would be about a year from now. That could mean that investors require a return of ~12% (190 purchase price / 170 current price) over that timeframe.

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