Summary

IBM seeks to expand its position in the cloud computing market.

The takeover of Red Hat strengthens IBM's market position.

The takeover comes at a high price, it looks like it will not be accretive in the short run.

Thesis

IBM's (IBM) acquisition of Red Hat (RHT) presents a major bet by IBM on cloud computing. The biggest acquisition IBM has made in its history will transform the company to a significant degree.

Red Hat will be taken over at a quite high valuation, and it is questionable whether that will be positive for IBM's shareholders. It looks like the deal will not be immediately accretive due to Red Hat's high valuation.