A recent Business Week article said that Raleigh, N.C.-based Red Hat Inc. is ripe for a takeover bid because its pockets don’t bulge as quickly as those of proprietary vendors and suggested Palo Alto, Calif.-based VMware Inc. as a promising buyer. VMware has a heftier cash flow and doesn’t have an operating system, a gap that Red Hat would fill, the author argues.
But three IT analysts panned the idea for multiple reasons. Richard Jones, the vice president and service director of Burton Group in Midvale, Utah, and Charles King, a principal analyst of Pund-IT Inc. in Hayward, Calif., don’t think Red Hat’s relative flat stock price makes it vulnerable.
“I don’t think it’s a risk,” King said. “The players within the industry and those in investment live in separate realities. If Red Hat can’t be a success as the clear leader in the market, what could VMware do to make it more successful?”
Jones doesn’t think Red Hat is vulnerable either. Red Hat has only its brand to offer (since open source software is free) and the company would be too expensive to buy, he said. Instead of VMware, Jones thinks that Oracle Corp. would be the more likely buyer.
Joe Clabby, principal at Clabby Analytics in Yarmouth, Maine, said a VMware/Red Hat merger doesn’t make sense because the addition of an operating system would put Hopkinton, Mass.-based EMC Corp., VMware’s parent company, in conflict with the other major hardware vendors who distribute VMware.
“I don’t see Red Hat making a ton of money,” Clabby said. “‘But I don’t think anybody’s at risk.”
But Clabby admitted that his crystal ball is sometimes a bit cloudy. “I didn’t think EMC Corp. should have bought VMware. But that acquisition has paid off extremely well.”
Ironically, the Red Hat news alert that initially popped up this week linked to a Computerworld column suggesting that IBM buy Red Hat, while admitting the outcome was quite unlikely. But a closer look revealed that Google erred in listing the “recent” article, which was written in 2002. The author, Nicholas Petreley, a computer consultant in Hayward, Calif., said this week that he was one of the first to urge IBM to buy Red Hat in the mid-’90s but said the acquisition now would simply put it in competition with other distros, similar to Clabby’s argument against a VMware/Red Hat merger. And Petreley’s thoughts were the same as mine: somehow the VMware piece resurrected his IBM column out of the depths of time and presented it as something new.
Well, as we all know, technology doesn’t always work 100% of the time. And this is just one more example.
The bottom line: Red Hat appears not to be a takeover candidate for now. And that’s probably a good thing.