IBM CEO Arvind Krishna appears at the World Economic Forum in Davos, Switzerland, on January 16, 2024.
Stefan Wermuth | Bloomberg | Getty Images
IBM Shares fell as much as 6% in extended trading Wednesday after the hardware, software and consulting company said it would acquire cloud software maker HashiCorp and announced first-quarter revenue was lower than analysts expected.
IBM announced in a statement that it intends to pay $35 per share in cash for HashiCorp in a deal with an enterprise value of $6.4 billion, net of cash. The Wall Street Journal reported Tuesday that IBM was close to acquiring HashiCorp, sending shares soaring. Bloomberg said earlier on Wednesday that IBM was looking at a $35 per share offer.
The transaction will be accretive to adjusted EBITDA in the first full year after closing, and accretive to free cash flow in the second year after closing. IBM said it expects the deal to close by the end of 2024. A spokesman for Dave McJannet, HashiCorp's chief executive, said he would report to Rob Thomas, IBM's senior vice president in charge of software, if the deal goes through.
HashiCorp will 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 for use on multiple public clouds, making it a neutral entity.
HashiCorp pioneered the open source software that developers rely on to control cloud infrastructure. Premium versions of Terraform cloud management software and other products brought revenue to HashiCorp.
In 2021, HashiCorp shares began trading on the Nasdaq Stock Exchange. But revenue growth slowed, and the company continued to report losses. However, it is adding revenue at a faster pace than IBM.
HashiCorp shares rose 4% in extended trading after the acquisition announcement.
Here's how IBM did compared to the consensus among analysts polled by LSEG:
Earnings per share: $1.68 adjusted vs. $1.60 expected Revenue: $14.46 billion vs. $14.55 billion expected
IBM's revenue rose about 1.5% year over year during the quarter, according to a statement. This marks the company's third revenue loss in the past five quarters.
Revenue from software, at $5.90 billion, rose about 6% and was below the consensus of $5.96 billion among analysts surveyed by StreetAccount.
IBM's consulting revenue was $5.19 billion, down slightly and just below the StreetAccount consensus of $5.20 billion.
Total infrastructure revenues amounted to $3.08 billion. It fell 0.7% but came in above the StreetAccount consensus of $2.94 billion.
During the quarter, IBM said it would equip its 160,000 advisors with AI assistants to boost productivity, and the company completed the divestiture of The Weather Company to Francisco Partners.
Despite the after-hours moves, IBM shares are up about 13% so far this year, outperforming the S&P 500, which is up 6% over the same period.
Executives will discuss the report with analysts in a conference call beginning at 5 p.m. ET.
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