Red Hat’s shares closed at $19.51 before Oracle’s chief executive officer, Larry Ellison, announced that Oracle would offer Linux support at half the price of Red Hat. They opened Thursday at $15.75, having slumped 19.2% in after hours trading.
Shares dipped as low as $13.70 (down 29.7%) in early trading, valuing the entire company at $2.62bn, compared to $3.73bn at the previous close. When you consider that the company had cash and investments at the end of August of $1bn that makes it a very attractive takeover target. Red Hat’s shares later recovered to about $14.30.
The share price drop prompted some market speculators to suggest that reducing Red Hat’s stock market value might be as much of a driver for Oracle as reducing the company’s Linux market share.
Certainly Ellison’s comments to the Financial Times in April that prompted speculation it was about to move into the Linux distribution business are worth re-reading. I don’t see how anyone can buy Red Hat, not at anything near these prices, because anyone who feels like taking the code – they have no intellectual property, he said at the time, when Red Hat share price of $30 gave it a market cap of $5.74bn.
Oracle had just acquired open source database vendor Sleepycat, proving that there was some value in open source acquisitions. The price is reasonable and you’re getting a high quality development team, explained Ellison of that acquisition.
Clearly there is value in Red Hat’s support expertise and key developers, not to mention its other products, and Oracle is clearly not averse to acquiring open source talent if the price is right.
The FT interview took place shortly after Red Hat announced that it was acquiring open source middleware vendor JBoss, positioning it as a competitor to Oracle’s middleware offerings. JBoss was a known Oracle takeover target, and market watchers have also speculated that Unbreakable Linux is Ellison’s revenge for Red Hat stealing JBoss from under his nose.
Red Hat’s low market cap certainly puts it in danger of becoming a takeover target, but its share price is also historically volatile and if it can tough it out and prove that Unbreakable Linux will not impact its revenue figures, it could also see a significant rebound.
Oracle’s move also saw an impact on Novell Inc’s share price on Thursday, although the fact that Oracle is directly targeting Red Hat saw Novell escape relatively lightly. Its shares opened at $6.00 having closed the previous day at $6.14 and fell just 46.4% in early trading to a low of $5.75 before rebounding.
