A Red Hat Acquisition By Oracle? Unlikely
by Sam Dean - Mar. 24, 2009Comments (1)- Related Blog Posts
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In a swimmingly good day for the stock market yesterday, shares in Red Hat rose a whopping 10 percent, on speculation that Oracle may buy the company. The flight of fancy began with comments from Jeffries & Co. analyst Katherine Egbert, covered by Barron's. Reuters picked up on the rumor, but Steven J. Vaughan-Nichols is having none of it, and Matt Asay points out that this exact rumor is seasonal. I doubt if Oracle is after Red Hat, but I'm not as sure as Vaughan-Nichols that an acquisition wouldn't make sense for Oracle.
Here is Vaughan-Nichols' take:
"What could Oracle CEO Larry Ellison get from buying Red Hat? Red Hat Linux? Duh, hello? Oracle already has RHEL (Red Hat Enterprise Linux), except they call it Oracle Unbreakable Linux. So, he'd want to buy the real thing because...? Let me know when you come up with a good reason."
I agree that RHEL and a new software stack don't make sense as reasons why Oracle would be interested in Red Hat. However, Red Hat has done a stellar job of serving up low-cost support and services, where the company's top 25 customers renew their contracts virtually without fail. These relationships and recurring deals are why the company has continued to win financially even in this hideous economy.
As news of a possible acquisition of Sun by IBM sinks in, it's being widely reported that due diligence is holding up the deal. IBM is reportedly reviewing Sun's many contracts with corporate customers. Sun has historically been very dependent on contracts with the financial services industry, and IBM is probably looking closely at future prospects there.
A Red Hat acquisition by Oracle would have the same kinds of drivers, and wouldn't necessarily be all about software. It would be about customers and support.
Still, I don't think any acquisition attempt is on here. In November, in my post "How Low Can Public Open Source Companies Go?" I speculated that Red Hat and Sun might both be acquired soon because their market capitalizations were about equivalent with their cash positions. Sun stayed that cheap after that, until news of the possible IBM acquisition arrived, while Red Hat's stock nearly doubled. The company isn't as cheap as it was, and I think if Oracle were going to make a move, it would have done so before. Today, Red Hat's stock is down.
