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Red Hat Files For Followup Stock Offering
An anonymous reader writes "Red Hat has filed with the SEC for a followup offering of up to 4 million shares. The goal is 'To provide working capital and for other general corporate purposes including geographic expansion and possible strategic acquisitions or alliances.' The S-1 filing can be found
here. "
A secondary IPO allows the company to offer many of the shares not already on the public market to the public. This means many more shares will be available for trade after the secondary IPO.
In the age of Internet stocks, secondary IPOs have become a way for execs at companies with high-flying stock prices to cash in. While normally executives at publicly-held companies must wait 6 months or so and divulge all scheduled sales of stock, secondary IPOs offer those same executives a chance to cash out on a large percentage of their stock.
-- jar
A typical reason for a secondary offering is that a company has had a great IPO and a great run-up afterwards, but most of that money ended up going to early investors, not the actual corporation. For instance, Red Hat sold something like 7 million shares at $14 each for a total of around $100 million in cash. If they had sold those 7 million shares at today's prices, they would have taken in over $800 million to use for corporate purposes. Actually, though, they plan to sell 2.75 million (plus some more personal shares from top holders) for about another $300 million.
Look at the obscene prices they had to pay for Cygnus and Hell's Kitchen when they paid in stock. If they had been able to pay cash for HKS, they would have gotten it at a fraction of the cost. With this new cash infusion, they'll be able to make deals like that, as well as generally invest (as a minority holder) in the new wave of open source startups.
--JRZ
I doubt that they are going to make many large acquisitions. The money would be better spent, at this point, in improving distribution channels, securing large partnerships with hardware manufacturers, opening foreign offices, building more internationalized distributions (easier with Linux/X/GNOME than with most other OSes) and generally becoming the only distribution that people think of when they think Linux. Buying out one of the other competing Linux vendors might also be the way to go.
I say this from a financial point of view, but of course, I still cheer when I see things like Mandrake and TurboLinux. We need a more competitive market than the computer industry has had. It's starting to shape up to be a lot like the car market, and that would be a (reasonably) good thing.
Red Hat should buy Intuit (or at least become a major shareholder in them). Then we'd get Quicken / Quickbooks for Linux and many people would be able to wave Windows goodbye.
HH
Yellow tigers crouched in jungles in her dark eyes.
She's just dressing, goodbye windows, tired starlings.
Time for a new Slashdot Section: IPO'S.
It seems like every other day some company raised X million capital, or has filed for an IPO. Or maybe just a business or finance section could accomodate this type of news. Just an idea.
Some possible interesting takeover targets for RedHat (some already mentioned here, some not):
There would be a lot of good possible takeover targets! This will be interesting to watch.
--------- Webmaster, http://www.cpureview.com and
We have incurred operating losses in four of our previous five fiscal years, including our most recent fiscal year ended February 28, 1999, as well as in the nine months ended November 30, 1999. We expect to incur significant losses for the foreseeable future[.]
[W]e cannot be certain when or if we will achieve sustained profitability. Failure to become and remain profitable may adversely affect the market price of our common stock and our ability to raise capital and continue operations.
And neither am I certain, from this vantage (albeit from the vantage of someone who missed out on the initial ipo frenzy). I plan to continue to use RedHat's products for the near future, just as I do with many IPOed companies' products which are being sold as a loss-leader, but it'll be some time before I plan to buy any of their stock. I trust that Linux will win out in the long run, but I'm by no means certain that RedHat will be the ultimate victor -- the barrier to entry is just too small. The winner might not even exist on the field at this moment.
Methinks it'll be time soon for a mutual fund that invests exclusively in Linux companies and does so across the board.
"If one is really a superior person, the fact is likely to leak out without too much assistance" -- John Andrew Holmes
Red Hat has real financial problems. Despite that $30 billion market capitalization everybody looks at, they only have about $500 million in assets from their IPO. They're trying to capture some of that market cap for their own use with a secondary IPO, and get another $350 million. But why the big rush? Because the insiders own about half the stock, but can't sell for six months after the IPO. The first restrictions on insider sales run out in February, at which time the founders can cash out, put the carpeting in on the yacht, and retire, if they so choose. Those sales can dwarf the number of shares in the secondary IPO, as the SEC filing points out. This will tend to drive the stock price down. But the real trouble is on the current-accounts side. Red Hat is a company that sells a product that they didn't pay to develop, can manufacture cheaply, sells for a reasonable retail price, and they still lose money. They don't have to pay for huge manufacturing plants, billion dollar wafer fabs, or building retail stores in malls. They should have become profitable as soon as they had any reasonable volume. like a hit record. But they're not. This raises real doubts about the business model. How's it supposed to ever become profitable? If it's not working now, why will it work later? If you don't know who the sucker is in the game, you're the sucker. (Buffet - the investor, not the singer.)