IBM To Accelerate Hybrid Cloud Growth Strategy and Spin-Off Managed Infrastructure Services Unit

IBM announced it will accelerate its hybrid cloud growth strategy to drive digital transformations for its clients.  Additionally, IBM will separate its Managed Infrastructure Services unit of its Global Technology Services division into a new public company ("NewCo"). This creates two companies, each with strategic focus and flexibility to drive client and shareholder value.

IBM, a Hybrid Cloud and AI Company

IBM will focus on its open hybrid cloud platform. Building on IBM's hybrid cloud foundation, the company acquired Red Hat to unlock the full value of the cloud for clients, further accelerating adoption of the platform. This platform facilitates the deployment of powerful AI capabilities to enable the power of data, application modernization services, and systems.

With tighter integration and focus on its open hybrid cloud and AI solutions, IBM will move from a company with more than half of its revenues in services to one with a majority in high-value cloud software and solutions. IBM will also have more than 50% of its portfolio in recurring revenues.

IBM's open hybrid cloud platform architecture, based on RedHat OpenShift, works with the entire range of clients' existing IT infrastructures, regardless of vendor. This platform allows clients to "write-once/run-anywhere," and enables a hybrid cloud approach that drives up to 2.5 times more value for clients than a public cloud-only solution.

As part of this strategic acceleration, IBM is taking action to simplify and optimize its operating model for speed and growth. This includes streamlining its geographic model and transforming its go-to-market structure to better engage with and support clients. IBM is also continuing to consolidate its shared services. This simplified and focused operating model will support accelerated innovation for the hybrid cloud and provide more flexibility to increase investment in growth areas. The result will be an enhanced financial profile with a clear trajectory for improved revenue and profit growth.

NewCo, the Managed Infrastructure Services Company

The new company (to be named at a subsequent date) will be entirely focused on managing and modernizing client-owned infrastructures. It will leverage its expertise to offer hosting and network services, services management, infrastructure modernization, and migrating and managing multi-cloud environments.

With a streamlined business model, NewCo will create value by helping enterprises optimize their performance through AI and automation. NewCo's services will enable enterprises to build agility and efficiency into their infrastructure and datacenters. NewCo will be able to better modernize infrastructures for an unparalleled roster of clients in all industries.

The separation is expected to be achieved as a tax-free spin-off to IBM shareholders and completed by the end of 2021.

Separation Transaction Details

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.

One-time transaction costs are expected to include tax charges, operational separation activities, and other customary items.