Let's not confuse accounting earnings with cash flows. Red Hat is generating a decent amount of cash ~1B in cash from operations (difference from 433M mostly du

Let's not confuse accounting earnings with cash flows. Red Hat is generating a decent amount of cash ~1B in cash from operations (difference from 433M mostly due to stock based comp and deferred revenue, common for software companies). I didn't look into the details of the deal but IIRC $34B is the enterprise value, so it probably includes a refinancing of Red Hat's debt. RH had ~20M in interest last year, so you can take that off of the 700M. So now we're talking about 680M in marginal interest expense on a firm with ~950M in pre-transaction free cash flow to equity. Not to mention RH's 65% top line growth in 2018, we'll see if that happens again. This transaction could be cash flow positive right off the bat. Also Red Hat is operating at an ~18% ebitda margin (did not go looking for add backs), I'm assuming IBM can get that up. Of course, it's easy to imagine IBM just torching all of Red Hat's top line... can't rule that out.