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First it was Barron's on Monday saying Red Hat (NYSE: RHT), a provider of Linux open-source operating-system software, will likely be in play. "What makes it strategically important is that it sells the dominant operating system (other than Windows) favored by big corporate users," Barron's Mark Veverka said. The possible interested parties? IBM (NYSE: IBM), Oracle (NASDAQ: ORCL) and Hewlett-Packard (NYSE: HPQ).
Then, today, Jefferis analyst Katherine Egbert supported that argument, saying that it is "inevitable that Red Hat will be subsumed into a larger entity, probably IBM." Egbert reiterated her Buy rating and upped her price target to $21, from $18.
If the response to the Barron's article was somewhat muted, the response today is not, but with the stock jumping over 8% in early afternoon trade.
I can totally understand the allure of Red Hat. It's a solid, growing profitable company, offering a great product. But perhaps that's exactly why it may not be a good target. Trading at 32 times forward earnings, it might be an expensive choice. There are other companies out there, like Novell (NASDAQ: NOVL), that offer a Linux platform. These companies are in greater need of help and will go for much cheaper than pricey Red Hat.
Everybody's talking about the coming tech M&A as a certainty. Red Hat may or may not fit the bill, depending on who's buying. As a private investor, it definitely represents a good opportunity considering other tech companies out there, allbeit, a pricey one after today.
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