IBM (NYSE:IBM) is said to be one of the crown jewels of American technology.
But it’s not. Some 80% of the company’s Global Technology Solutions employees will be based in either India or Eastern Europe by the end of the year. A new round of job cuts in western Europe began Dec. 6, an Open Voluntary Separation Program that also covers the company’s outsourcing business.
IBM has been moving in this direction for years, trying to match costs with companies such as Cognizant Technology Solutions Corp (NASDAQ:CTSH), which is run out of the U.S. but keeps much of its programming staff in lower-wage locations.
This led me to consider a startling question. Could IBM itself be sold? What would it take?
Selling IBM
Despite the IBM stock price falling nearly 19% in the last five years and dropping out of the front rank of technology — even Oracle is worth $60 billion more than IBM’s present market cap of $142 billion — the company is still huge.
IBM should come close in 2017 to matching 2016’s revenue figure of $79 billion, with $21.97 billion in revenue expected for this quarter, and $5.17 per share of net income. The company generated nearly $11 billion in operating cash flow during the third quarter alone. Including debt of $45 billion, IBM’s total valuation is about $187 billion.
The best way to sell IBM, then, would be in pieces, through a private equity company. Maybe this sale could be spurred on by activists seeking a quick profit, possibly shepherded by a U.S. asset manager such as BlackRock, Inc. (NYSE:BLK) or The Carlyle Group LP (NASDAQ:CG), where legendary former IBM CEO Lou Gerstner is still listed as a senior adviser.
The outsourcing group, where the layoffs are now happening, could be acquired by Accenture Plc (Germany) (NYSE:ACN), which has a market cap of $95 billion.
As in past acquisitions by NationsBank (which became Bank of America Corp (NYSE:BAC) and SBC Communications (which became AT&T Inc. (NYSE:T)), the name might be a big part of the value here.
Carving Up Big Blue
This would leave some tasty businesses, each with different business models, to be carved up by the acquirer.
The mainframe business, which remains alive and wildly profitable but continues to decline, could be sold to a Chinese company such as Lenovo Group Limited (ADR) (OTCMKTS:LNVGY), which could increase profits by moving the work there.
The cloud business, acquired as SoftLayer in 2012 for just $2 billion, might deliver fat dividends as a data-center REIT, like CoreSite Realty Corp (NYSE:COR) which is throwing off 90 cents per share in dividends each quarter thanks to its corporate structure. It also might make a good bolt-on for AT&T.
The remaining technologies, like the chip business, research, Watson and supercomputer systems, would, as standalone opportunities, be certain to find ready buyers in Silicon Valley, and that cash may make the whole exercise profitable.
Stop Dreaming
Before you call your broker, please know that all this is just a dream, from one old reporter whose neighbors all worked for IBM when he was growing up, in the days when IBM was the very embodiment of the American dream.
As I wrote just a week ago, IBM is being run like a long-term bond, and a poorly performing one at that. It is, at best, a dividend stock in a growth industry, the Grey Gardens of technology.
That is probably what leads to dreams like breaking IBM up and selling the pieces. To this old technology investor, IBM looks like a nightmare. I just want it to end.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance, The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares in companies mentioned in this article.
