There is a lot more significance to this than meets the eye.
There is a lot more significance to this than meets the eye.
Posted Jan 7, 2004 5:26 UTC (Wed) by BrucePerens (guest, #2510)In reply to: Red Hat borrows $500 million by DaleQ
Parent article: Red Hat borrows $500 million
Rather than a loan, consider this an option to purchase the stock at a fixed price in the future. The investor is considering that RHAT will rise above $25, and that converting the stock will result in profit.
But who would give them that sort of sweetheart deal? After all, they are only around $18 now, and thus the investor could just buy the stock.
I think that we are seeing a large investment in RHAT by an investor that does not want their name to become public at this time, because it will be percieved that they have "bought" Red Hat, and that will somehow damage the near-term business prospects of either their company or Red Hat. IBM comes to mind, but it could be a few others, folks we like or folks we don't like.
Bruce
Posted Jan 7, 2004 6:37 UTC (Wed)
by robla (subscriber, #424)
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If they buy the debentures at $25/share, and the stock goes down to $6, the investor can still get their $25+0.5% interest out of it. Not a great investment, but not a loss as above. It's a lower risk investment (with a smaller reward). Rob
Posted Jan 7, 2004 14:01 UTC (Wed)
by james (subscriber, #1325)
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Isn't speculating fun!
"IBM as the buyer" makes a lot of sense, especially following up the Novell / SuSE tie-up.
From IBM's point of view, there are now only two major distributions for large-scale serious server deployments. One of them has been bought by a traditional IBM competitor. Whoever bought these debentures has now made it difficult for Red Hat to be bought out by anyone else: they can be converted into voting shares, if necessary.
(I don't know what the US rules say: I believe there are rules in the UK stock market to protect the investments of minority shareholders. The buyer might even have enough share rights to prevent a takeover. And there may be such an agreement in the unseen legalese).
IBM hasn't wanted to create its own distribution. (It occasionally mutters about possible legal liabilities: there's been a lot more of IBM to sue than Mandrake, say).
This would be a good way for them to put money into a big Linux distributor with a good track record of making enhancements and contributing them back, without the slightest suspicion that IBM has undue control over the company. (Compare this with the suspicions that the Canopy Group have been directing SCO's suit, and the possibility that IBM might sue Canopy.)
Red Hat, of course, easily wins the "Major Linux Distributor with the Most Paranoid Policy about Other People's IP" award, so the risk would be tiny, anyway.
Besides, multiple independent distributions serve IBM's purposes just as well as an official IBM distribution competing against independents, and as Bruce says, the status quo keeps the "IBM takeover" paranoia down.
(They're making a lot of money by working with us: why would they want to jeopardise it?)
It could also be IBM making sure that Red Hat has enough money to sue SCO, of course.
If they buy the stock at $18, and it goes down to $6, the investor is out the difference.There is a lot more significance to this than meets the eye.
There is a lot more significance to this than meets the eye.
James.
Posted Jan 7, 2004 14:05 UTC (Wed)
by bryam (guest, #6857)
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Regards, -Adriano
Oracle in my mind Bruce ;-)There is a lot more significance to this than meets the eye.