IBM Shares Dive After Large-Scale Acquisition Announcement Despite Solid Quarter

After posting sturdy quarterly figures, IBM investors redirected their focus to a costly takeover that fans concerns about the company’s leverage. The question now is whether the strategic pivot justifies the increased debt load.

Markets hit the pause button on IBM’s stock on Thursday, driving shares lower by a hefty margin and making the name one of the weak links in the Dow Jones Industrial Average. The stock slid roughly 4.8% to 6.5% on the session, closing at 257.22 USD and marking the steepest one-day decline in months. Trading volume surged to about 12.5 million shares, a jump of 133% from the typical daily level. The options market also reflected growing skepticism, with bets on lower prices rising notably.

The keynote driver behind the selloff is IBM’s plan to acquire Confluent, a specialist in data streaming. The deal values Confluent at about 11.9 billion USD, with IBM offering 31 USD per share, a premium of 35% over the 30-day average trading price. While management argues the acquisition would bolster IBM’s hybrid cloud and AI capabilities, investors are weighing the potential financial strain. Post-transaction, IBM’s net debt to EBITDA could climb to about 2.5x, a development that has drawn concern from some shareholders and rating agencies alike.

Regulatory scrutiny adds another layer of risk. With heightened vigilance over tech mergers, antitrust authorities are expected to conduct a thorough review, which could slow the integration process.

On the fundamentals, IBM remains financially solid. For the fourth quarter, the results exceeded expectations:
- Earnings per share: 4.52 USD (consensus: 4.33 USD)
- Revenue: 19.69 billion USD, up 12.2% year over year

The company also reaffirmed its dependable dividend policy, with a payout of 1.68 USD per share scheduled for March 10.

Analyst sentiment is mixed, with price targets ranging up to 370 USD and a portion of ratings still advising selling. In the near term, volatility appears likely to stay elevated as investors await fresh inflation data and await additional signals from competition authorities regarding the proposed acquisition.

@ boerse-global.de | US4592001014 IBM