Red Hat Hit With Securities Suits Over $34B IBM Deal

Red Hat Inc. faces two would-be class suits over IBM’s proposed $34 billion acquisition of the open source software firm, both alleging it didn’t disclose necessary financial information.

Red Hat’s proxy statement didn’t include all the information shareholders need to evaluate the merger, according to complaints filed Dec. 18 and 19 in the U.S. District Court for the District of Delaware.

The proxy statement for the proposed International Business Machines Corp. acquisition didn’t include the data underlying Guggenheim Securities and Morgan Stanley’s valuation of Red Hat, according to the complaints. It also left out information about the firms’ potential conflicts of interest, the complaints said.

The shareholders said they couldn’t evaluate the fairness of the deal without a better picture of Red Hat’s future financial prospects. IBM and Red Hat “insiders"—not shareholders—look poised to benefit the most from the merger, according to the Dec. 18 complaint.

The proxy statement didn’t disclose how much Guggenheim and Morgan Stanley have been paid by IBM and Red Hat in the past, the complaints said. Without information about the firms’ financial stake in the deal, the shareholders can’t determine if their analyses were fair, according to the complaints.

A Red Hat spokesperson declined to comment, citing a policy against speaking on pending litigation.

Rigrodsky & Long PA represents the Dec. 19 putative class. O’Kelly Ernst & Joyce LLC represents the Dec. 18 class.

The cases are Kent v. Red Hat Inc., D. Del., No. 1:18-cv-02022, complaint filed 12/19/18 and Orgel v. Red Hat Inc., D. Del., No. 1:18-cv-02006, complaint filed 12/18/18.