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Can Google hijack IBM’s $34 billion Red Hat acquisition deal?

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It’s not clear if any buyer can offer Red Hat something higher than what IBM has on the table – $190 per share, according to CNBC.

Red Hat on Sunday announced reaching an agreement to be acquired by IBM for around $34 billion. Meanwhile, the open-source software company has also had discussions with some other “logical buyers” as the negotiation with IBM was going on, with Google tipped to be on the race to buy the software developer, said one of the people, who prefers not to be identified because the discussions were private.

Google’s interest to acquire a complimentary company is very evident since last year. It had wanted buying GitHub before Microsoft snapped the code-sharing firm for $7.5 billion last week.

Red Hat CEO Jim Whitehurst told CNBC earlier this week that the company has discussed with many potential buyers, but none has progressed nearly as far as its talks with IBM. Google is among the many potential bidders that had preliminary discussions with Red Hat over acquisition deal some years back.

IBM Red Hat deal could be safer

Red Hat acquisition is still open to other bidders. Any company with a higher bid wins the deal. However, potential suitors view IBM as a buyer that won’t significantly modify the competitive landscape or disrupt the current operations at Red Hat, the people said. That withstanding, Red Hat could consider the deal more important if it’s not willing to suffer radical changes or partially lose its current mission.

Red Hat has already been assured by IBM that it would continue to operate independently within its new parent: IBM and without serious interference.

Google Tax Bill

Red Hat’s hybrid cloud infrastructure that intercalates third-party cloud computing and on-site private serves will be important in IBM’s cloud expansion if the deal pulls through. However, Amazon, Google, and Microsoft will still be in good position to battle for market share in terms of normal public cloud.

Analyst Joel Fishbein of BTIG believes that IBM’s Red Hat acquisition is a ‘desperate deal.’ It’s actually IBM’s biggest deal and the third-largest tech deal ever. IBM is paying more than a 60% premium over Red Hat shares closing price on Friday – $116.68 per share. When the companies agreed on the deal’s economic terms, the premium was actually closer to 40%, said one of the people. Red Hat shares fell this month after trading at around $135 last month.

Google has not responded to request for comment; if it’s still in talks for a deal with Red Hat. However, Cowen and Co Analysts believe other bidders should better take a hard look at Red Hat.

Red Hat would be obligated to pay IBM the sum of $975 million in cash should the deal be terminated, according to an SEC filing.

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