Technology giant IBM’s recent acquisition of open source software company Red Hat continues to make waves in the investment world. By merging with Red Hat, IBM can operate beyond its current infrastructure, which relies heavily on in-house private servers and third-party cloud sources. The merger allows secure and portable interfaces across multiple cloud platforms. While the $34 billion deal may result in substantial financial benefits for Red Hat executives, many of the company’s shareholders are not so pleased.
New class action shareholder suits opposing the merger have been filed recently, naming Red Hat and its corporate officials as defendants. Federal complaints filed in Delaware allege the defendants misrepresented material facts about the merger in securities filings and proxy statements. Failing to disclose material information, including potential conflicts of interests by the valuation firms would be a violation of several federal securities laws. Valuable missing information includes the data used in the valuation analysis conducted by Guggenheim Securities and Morgan Stanley, which was submitted as part of the acquisition package.
According to the shareholder complaints, these material misrepresentations resulted in an undervaluing of the stock and the inability of shareholders to properly evaluate the deal prior to being forced to vote on it. Many investors believe a fair review of the deal was impossible without the financial data necessary to evaluate the company’s future financial prospects.
Red Hat shareholders must prove IBM underpaid for the acquired stock to support their claim for damages. Many industry experts believe the shareholders will be fighting an uphill battle given the record breaking $34 billion buyout. IBM contends the acquisition will accelerate revenue growth, gross revenue, and free cash flow.
IBM is not the first company that has attempted to negotiate a deal with Red Hat. Corporate insiders have confirmed previous discussions with other high-tech entities including Google, Cisco, Oracle, and Amazon. Another interested buyer was Microsoft, which recently purchased code sharing company GitHub.
IBM’s partnership with Red Hat has been touted as a “game changer” in the tech market and a boom for hybrid multi-cloud platforms. The terms of the deal allow Red Hat to operate as a distinct unit as part of IBM’s Hybrid Cloud Team, while continuing its ongoing partnerships with other major cloud providers including Amazon Web Services, Alibaba, Google Cloud, and Microsoft Azure. Should a federal court nullify the IBM deal, Red Hat is likely to revisit any missed opportunities with other interested tech companies.
Relief for Shareholders
Shareholders opposed to acquisition deals such as the Red Hat and IBM merger often file class action lawsuits seeking relief, including a termination of the acquisition agreement. Shareholders who suffer financial losses resulting from an improper or illegal merger may be able to obtain compensation for their losses. The first step in protecting your rights as a shareholder is contacting an experienced litigation attorney at SFMS who can guide you through the complexities of filing a shareholder suit.
Experienced Litigation Attorneys at Shepherd, Finkelman, Miller & Shah, LLP Protect the Rights of Shareholders
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