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THE HEADLINES

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BIG BLUE IS SEEING RED

Sundays are supposed to be a day of rest, but IBM didn’t seem to get the message, announcing yesterday that they will acquire software company Red Hat for $34B.

This acquisition is the largest in IBM’s history and the third largest in tech history, behind JDS Uniphase’s $41B acquisition of SDL in 2000 and the $67B merger between Dell and EMC in 2016. IBM will pay cash at $190 per share, which is a 63% premium to Red Hat’s close on Friday.

This appears to be IBM’s latest attempt to get the monkey off its back. Prior to this past January, International Business Machines had nearly six years of falling revenue. It’s been “rebuilding” though, shrinking older lines of business and focusing on cutting-edge tech, such as AI and cloud computing.

Red Hat started 25 years ago as a distributor of Linux, an open-source operating system that is commonly used in server computers that power company data centers. Adding Red Hat’s market cap of $20.5B will make IBM the world’s largest hybrid cloud provider.

Water Cooler Talking Point: “Pretty bold strategy claiming that they’ll retain all of Red Hat’s twelve thousand employees. Where are the synergies? Let’s ask Watson.”

 

ONE NITE STAND

Epic Games, the studio behind the wildly popular video game franchise, Fortnite, landed a $1.25B cash injection. The power-up will value the company at $15B and is the largest investment in a video game developer ever. Investors include heavy hitters like KKR and Kleiner Perkins.

The studio’s meteoric rise is tied to one mode of play within one game. It was Fortnites’s ripoff of PlayerUnknown Battleground’s battle royale mode that changed its fortune. In May 2018 alone the free game netted $318M in revenue via microtransactions (think: virtual gear and upgrades).

Besides enjoying 80M players on its wildly successful title, Epic is cashing in via licensing deals with Nerf and Hasbro. And the company isn’t afraid to push its weight around, bypassing the Google Play store, thus avoiding having to share the standard 30% cut of in-app purchases with Alphabet.

Of course, Epic Games isn’t exactly a one-trick pony. It’s the creator of the Unreal Engine design suite which has been used by other game developers to create hundreds of games over the past 17 years.

Water Cooler Talking Point: “Power. Moves. Only. Gotta love Epic sticking it to the man.”

 

LEGEND HAS IT

Marketing agency, Legends, which is controlled by stakeholders including the Dallas Cowboys and New York Yankees, won the right to be the sponsorship sales agent for the 2028 Olympics in LA and Team USA. The company will be responsible for selling $2.5B in corporate sponsorships for the event.

Legends has experience selling suites, sponsorships, and seat licenses for the new home of the LA Rams, which will also act as the home of the Olympics in 2028. The partnership between the US Olympic Committee and the organizers of the LA games is in its very early stages, and contracts can’t even begin to be written up until January.

The USOC has a current portfolio of 20 domestic partners, but those contracts expire after the Tokyo Summer Games in 2020.

Water Cooler Talking Point: “So Legends is run by the Yankees and the Cowboys? Why stop there? Were Duke basketball and the Lakers not available?”

 

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IN OTHER NEWS

 

• “Documents secured.” – the FBI’s twitter handle. As part on an ongoing investigation, the FBI has intensified its investigation into whether Tesla misstated production figures of the Model 3 to investors. Documents related to the public’s guidance on Model 3 production numbers have been collected.

 

• And you think that you f*cked up at work last week. NBC is parting ways with controversial Today Show anchor Megyn Kelly after she defended a blackface Halloween costume. Kelly had a $69M contract with NBC. During her short tenure on the Today Show ratings fell 14%.

 

• JPMorgan was given a get out of jail free card by the Trump administration after having been handcuffed by the Office of the Comptroller of the Currency for the past 6 years as punishment for a series of rule violations. During the probationary period, the bank was barred from opening new branches. Its laundry list of wrongdoings includes failing to reel in the London Whale, not flagging transactions related to Bernie Madoff’s Ponzi scheme and a slew of missteps related to the acquisition of Bear Stearns.

 

• US GDP rose at 3.5% in Q3. Despite dropping off from the 4.2% growth figure achieved in the second quarter, GDP slowed less than expected, buoyed by the strongest consumer spending in 4 years.

 

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