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IBM acquiring Red Hat

Published by admin at August 29, 2022
Categories
  • Accounting
Tags
  • IBM acquiring Red Hat

 

Main idea of this case study is to discuss the transaction from the accounting perspective.
Accounting Case Analysis: IBM acquiring Red Hat in 2019
1. Basic information about both companies.
2. Accounting information about the transaction.
a. When it took date.
b. How many shares and how much it cost.
c. Any other pertinent information
3. What are the strategic motives that determined IBM to acquire Red Hat?
4. What are the main synergies (positive and/or negative) expected from the Red Hat acquisition by IBM?
5. What are the risks involved by this acquisition?
6. What are the main opportunities and threats faced by IBM post-acquisition?
7. What could be the competitive advantages of IBM post-acquisition?

 

 

 

Sample Solution

IBM (International Business Machines Corporation) is an American multinational technology company headquartered in Armonk, New York. It was founded in 1911 and is a leader in cloud computing, AI, analytics, security and hybrid infrastructure solutions. Red Hat Inc. is an American software company based in Raleigh, North Carolina that provides open-source software such as Red Hat Enterprise Linux and related services to enterprise customers.

In October of 2019 IBM announced it would be acquiring Red Hat for approximately $34 billion USD – the largest acquisition ever by the company (“IBM to Acquire Red Hat”). The transaction was structured as a cash tender offer where IBM would purchase all outstanding shares of Red Hat at a price of $190 USD per share – significantly more than its then market value ($116/share). A total of 87 million shares were exchanged with 53% going to institutional investors while 47% went to individual shareholders (“Red Hat Investor Relations Summary”). The deal closed on July 9th 2020 after approval from regulatory bodies in the US and EU (Wallerstein & Voreacos, 2020).

This acquisition has been seen as a major win for both companies as it will allow them to leverage their respective strengths within their key markets. IBM hopes that this move will help solidify its position within the growing cloud computing industry while expanding its global presence while at the same time allowing them access to new technologies and customer bases through Red Hat’s open source offerings (Stilwell et al., 2019). For its part, Red Hat gains access to IBM’s vast resources which can be used to further develop its existing products and services alongside being able to increase distribution capabilities around the world.

Restitution period is the another venture evaluation strategy which help to decide the genuine time expected to recuperate the speculation made in the undertaking. It is exceptionally gainful to the financial backers as they really need fast recuperation of their venture (Gotze, Northcott, and Schuster, 2016). Hence, it is for making a legitimate speculation examination through this strategy. Directors at Access Intelligence should find out the incomes that is normal from the item that the organization is creating and the venture required. The items which will give faster recuperation of the speculation sum should be contributed. The primary downside of this procedure doesn’t considers the part of time worth of cash.

 

Bookkeeping Rate of Return is one more venture examination method through which the supervisors at Access knowledge This specific strategy of speculation evaluation basically assists with assessing the profits that is normal from the undertaking by thinking about of the speculation expected in a task and incomes that is normal from an undertaking (Dyson, and Berry, 2014).

 

So basically, supervisors can involve differed methods of speculation examination for item that the Access knowledge are creating which assists with breaking down the venture’s capacity of getting monetary advantage from shifted viewpoints. So basically unique venture examination procedure assists in assessing the net money with streaming, some to decide the recuperation season of the underlying speculation and some strategy help to decree the return that is created from the item advancement. Hence supervisors should involve different speculation as talked about in above area before advancement of the items.

 

Viability of corporate Governance at Access Intelligence:

It is obvious from a top to bottom examination of the corporate administration of Access Intelligence that the organization isn’t following a most significant level of corporate administration. The corporate principles doesn’t follow the most noteworthy and the most persevering degree of corporate administration. The administration has advanced a reasoning for this, as Access Intelligence being an AIM organization, the association isn’t expected to follow the UK corporate Governance Code as ordered by the Financial Conduct Authority. The administration plainly expressed that that the gathering is simply dedicated to keep the corporate administration guideline according to it equivalent with its size. The utilization of the most extensive level of corporate administration ought to be high assuming that the organization will build the size of the organization. Since the organization’s administration is hesitant to put a compelling corporate administration component, it tends to be obviously expressed that administration isn’t willing to expand the size which is for sure a question of worry of the financial backers. So it tends to be properly expressed that corporate administration standards are not kept actually in the organization and in this manner most elevated guideline of corporate administration are not continued in the organization’s corporate framework (Wintoki, M.B., Linck, J.S. also, Netter, 2012).

 

It could likewise be examined that however there is appropriate board for taking pivotal choices and obligations and a few exceptional councils, for example, review panel, compensation council and designation council that has been comprised by the board for interior controls. According to the subtleties of the review board , it is obvious that review council just met double cross in the monetary year 2017 and just look at just monetary undertakings that too partially. The degree of obligations are simply restricted to interior controls, bookkeeping arrangements, consistence to the bookkeeping principles and arrangement of outer inspectors. In this manner is no legitimate system through which monetary misrepresentation could be forestalled and subsequently it tends to be expressed that the inward controls is likewise ineffectual to a huge degree. Corporate misrepresentation is mater of concern and the methods to manage corporate extortion isn’t as expected referenced in subtleties inside the corporate component of the organization. One of the main angle that should be called attention to that the there is no particular subtleties of autonomous chiefs that is available in the leading body of the Access Intelligence. This involves high worry as there might be serious level of abuse of abilities by the overseers of the organization.

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