Thread regarding IBM layoffs

IBM financing in May was a very smart deal. IBM has always been good at timing the market when it borrows. The additional debt burden POSSIBLY (NOTE I said Possibly) down grading IBM to BBB has to concern everyone. That is one notch above JUNK and I guarantee you keeps the board and our CFO awake at night. Ginni AAA to BBB in 7 short years. That’s one hell of an accomplishment. Drinks all around folks Ginni has 20 billion and is buying. My guess is the CFO absolutely has to clean up IBM’s balance sheet and FAST. BBB is a mill stone that will drown IBM quickly

@YXczRD3-1hor "don't forget we are in longest bull run of 10 years plus and beyond 2020 if recession comes"

This is the part that scares me the most and should scare everyone else as well. 10 straight years of uninterrupted economic growth and IBM actually SHRANK 25% in revenue over that time. Economy currently at its strongest since the late 90's (3% GDP growth, 3.6% unemployment) yet IBM is currently treading water, can't sustain growth, laying people off, etc. What will IBM performance look like when recession hits? By historical standards we are past due for one. It's going to be ugly.

Ouch

IBM only buying Red hat thinking that their technology innovation in cloud will save IBM and they will become number one player in Hybrid cloud market. but they don't understand 80% of companies are going with one cloud provider mostly AWS with almost 60% market share and rest of 20% of companies may opt for Hybrid cloud but now this year Aws launching Aws outpost (same Aws cloud technology running on premises),that Hybrid market will totally change with that Aws offering and hybrid cloud market shrink further from 20% to 10% or lower. IBM totally ignoring invovation threat from AWS and thinking bundling REd hat cloud offering with their offering will help to capture market share and more revenue but instead signing for debt spiral which will sink the whole IBM ship within 3-5 years because of losing further market share which in turn reduce revenue and finally whatever positive cash flow left in 3-5 years will be spend on either share buy back starting from 3rd year because of shareholder pressure of reduce share price or paying back bond /debt maturing beyond 5 years from now.This 34 billion purchase of Red hat is slow death for IBM in few years .And don't forget we are in longest bull run of 10 years plus and beyond 2020 if recession comes ,that will speed up death of IBM faster as revenue will go down faster. They are not saving anything for rainy days but instead spending everything and on top of that getting more money from market in form of bonds to k--l themself in few years.

Demand was fairly tepid compared with other bond sales this year. The order book was about twice the

size of the offering, while the average deal this year has attracted orders more than three times the size

of the final sale.

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Looking ahead. IBM has promised to buy back the bonds at a premium if the deal for Red Hat isn’t

completed by April 28, 2020. The 10-year segment of the bond sale was priced with a yield 1.05

percentage points above Treasury yields, the same spread as the Bristol-Myers deal.

So folks think the risk is too great on these bonds and the real target to complete the Red Hat deal is end of April, 2020. Yeah, closing in 2H19 is optimistic.

https://www.barrons.com/articles/ibm-bond-sale-red-hat-51557347372

Another sizable bond offering is hitting the market, the second in two days. IBM is selling $20 billion in bonds to finance its purchase of Red Hat. The reception for this debt has been a b--chillier than the first one, though.

The back story. IBM’s (ticker: IBM) bond offering just barely nudges out Bristol-Myers Squibb ’s (BMY) Tuesday sale to become the largest deal this year and the 10th-largest deal ever.

The $34 billion acquisition of Red Hat (RHT) is a key part of IBM’s plan to expand in the growing cloud-computing industry. The company’s legacy mainframe business is slowing this year—which was largely expected—so it is looking to its cloud and software businesses for growth.

What’s new. Big Blue sold eight tranches of fixed- and floating-rate bonds on Wednesday, maturing in 2 to 30 years.

Demand was fairly tepid compared with other bond sales this year. The order book was about twice the size of the offering, while the average deal this year has attracted orders more than three times the size of the final sale.

The $19 billion Bristol-Myers deal—covered more than three times over—likely took some wind out of the sails of IBM’s offer. Yet investors also expressed concern about the company’s plan to reduce leverage, though IBM plans to halt buybacks in 2020 and 2021 to pay down debt.

Looking ahead. IBM has promised to buy back the bonds at a premium if the deal for Red Hat isn’t completed by April 28, 2020. The 10-year segment of the bond sale was priced with a yield 1.05 percentage points above Treasury yields, the same spread as the Bristol-Myers deal.

It may not be the case that Bristol-Myers and IBM are comparably risky, though. For one, shorter-term debt issued by the d--gmaker sold with narrower spreads to Treasuries than IBM, implying less short-term risk. And broadly, the pharmaceutical industry is facing pricing pressure this year, says S&P Ratings, which means d--gmakers such as Bristol-Myers could see downgrades.

Article says "IBM .. risks a potential downgrade to the BBB range, the tier of corporate debt that’s just above junk"

Not surprising. You're buying $3.4B in annual revenue for $34B. If you raised the funds by selling off other parts of the company (and it's unlikely any of those parts would sell for more than 1-1.5X revenue) then IBM would be a $50B company after the acquisition, ~35-40% smaller than it is today. Net margins would be unchanged since both companies operate at about a 10% net margin. IBM is overpaying no matter how you look at it, but at least with debt financing they can keep the top line intact. As absurd as it is, the first time combined quarterly financials are reported they'll be cheerleading the YoY revenue growth even though it will be apples and oranges.

How pathetic

Kids, don't turn into an IBM loser and get out while you're young.