IBM CEO Arvind Krishna appears on the World Economic Forum in Davos, Switzerland, on January 16, 2024.
Stefan Wermuth | Bloomberg | Getty Images
IBM Shares fell as much as 9% in prolonged trading on Wednesday after the hardware, software and consulting provider said it will acquire the cloud software maker HashiCorp and reported first-quarter revenue that was lower than analysts had predicted.
In one opinionIBM said it plans to pay $35 per share in money for HashiCorp, representing an enterprise value of $6.4 billion after money. On Tuesday, the Wall Street Journal reported that IBM was near acquiring HashiCorp, driving up stock prices. Bloomberg said Earlier on Wednesday, IBM announced it will offer $35 per share.
The deal can be accretive to adjusted earnings before interest, taxes, depreciation and amortization in the primary full 12 months after closing and accretive to free money flow within the second full 12 months after closing. IBM said it expects the deal to shut by the top of 2024. HashiCorp CEO Dave McJannet will report back to Rob Thomas, IBM’s senior vice chairman in command of software, if the deal goes through, a spokesman said.
HashiCorp would complement Red Hat, which has contributed to IBM’s revenue growth since its $34 billion acquisition in 2019. IBM now sells Red Hat’s version of the Linux operating system to be used across multiple public clouds, making it a neutral entity.
HashiCorp pioneered open source software that developers depend on to regulate cloud infrastructure. Premium versions of cloud management software Terraform and other products have brought revenue to HashiCorp.
In 2021, HashiCorp shares began trading on Nasdaq. But sales growth has slowed and the corporate continues to report losses. Nevertheless, the corporate is increasing sales faster than IBM.
“We see multiple drivers of product synergies at IBM and accelerated growth for HashiCorp,” Jim Kavanaugh, IBM’s chief financial officer, said in a conference call with analysts. There are also near-term cost synergies, Kavanaugh said.
The merger should result in more customers wanting to seek advice from IBM, said CEO Arvind Krishna.
Shares of HashiCorp rose 4% in prolonged trading following the acquisition announcement.
Here’s how IBM performed in comparison with the consensus of analysts surveyed by LSEG:
- Earnings per share: $1.68 adjusted vs. $1.60 expected
- Revenue: $14.46 billion versus expected $14.55 billion
IBM’s revenue rose about 1.5% within the quarter year-over-year, based on a opinion. This is the corporate’s third revenue shortfall within the last five quarters.
Software revenue rose about 6% to $5.90 billion, below the $5.96 billion consensus of analysts surveyed by StreetAccount. Red Hat’s revenue increased 9% on a relentless currency basis within the quarter.
IBM’s consulting revenue was $5.19 billion, down barely and just under the StreetAccount consensus of $5.20 billion.
“We saw both an increase in backlog duration due to large-scale digital transformations and lower revenue recognition in the quarter as customers cut back on discretionary spending,” Kavanaugh said.
Infrastructure revenue was $3.08 billion. It fell 0.7% but was above the StreetAccount consensus of $2.94 billion.
During the quarter, IBM announced that it was making the next available to its 160,000 consultants Artificial intelligence assistants to extend productivity, and the corporate accomplished the divestiture of The weather company to Francisco Partners.
Despite the after-hours move, IBM shares are up about 13% thus far this 12 months, outperforming the S&P 500 index, which has gained 6% over the identical period.
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