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IBM To Split Into Two Separate Companies

IBM has just announced that it is going to divest its cloud and infrastructure services operations into a separate company, imaginatively dubbed “NewCo” for now. The move in many respects mirrors former rival Hewlett Packard’s split several years ago into hardware and services companies.

IBM’s “NewCo” spinoff will focus on infrastructure management, hosting, network and cloud services. The remaining IBM will focus on software, data processing, artificial intelligence, automation and security. The move generally speaking, separates IBM’s compute and services offerings from its network infrastructure offering,

The spinoff will take IBM’s following lines of business:

  • Server hosting
  • Network and telecom
  • End-user services (help desk)
  • Service management
  • Information security
  • Infrastructure modernization
  • Public and private cloud management
  • Data & infrastructure management
  • Security, IOT and edge

The remaining company, keeping the IBM brand, will offer:

  • Cloud application management and modernization services (on-premise, private cloud, public cloud and hybrid cloud)
  • Front and back office business process automation and digitization services (RPA, workflow transformation, AI, Blockchain, IOT, automation, 5G, data management)
  • Enterprise platform implementation and advisory services
  • Software and AI applications: CloudPaks – IBM’s software and services for data, analytics, security; and middleware solutions
  • High-availability, secure, and specialized compute and public cloud infrastructure

“Client buying needs for application and infrastructure services are diverging, while adoption of our hybrid cloud platform is accelerating. Now is the right time to create two market-leading companies focused on what they do best. IBM will focus on its open hybrid cloud platform and AI capabilities. NewCo will have greater agility to design, run and modernize the infrastructure of the world’s most important organizations,” explained Arvind Krishna, IBM Chief Executive Officer.

There seems to be a lack of clarity regarding certain IBM offerings, as both new companies claim IoT and public cloud services as part of their portfolio.

The proposed separation is expected to be effected through a pro-rata spin-off to IBM shareowners that will be tax-free for U.S. federal income tax purposes. The transaction is subject to customary closing conditions, including Form 10 registration with the U.S. Securities and Exchange Commission, receipt of a tax opinion from counsel, and final approval by IBM’s Board of Directors. The separation is currently expected to be completed by the end of 2021.

Following separation, the companies together are initially expected to pay a combined quarterly dividend that is no less than IBM’s pre-spin dividend per share. Following the completion of the separation, each company’s dividend policy will be determined by its respective Board of Directors.

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