| Red Hat joins the NYSE |
Dec. 11, 2006
Don't be surprised if you see a lot, and we mean a lot, of news about Red Hat in business publications on Dec. 12, when Red Hat Inc. moves from the NASDAQ to the NYSE (New York Stock Exchange).
While Linux users may not notice one whit of difference, it's a major change for the company. Red Hat launched its IPO (initial public offerings) on the NASDAQ on Aug. 11, 1999. On that date, the fledging Linux company's stock famously more than tripled in value.
Red Hat isn't, of course, expecting anything like that from a simple move from one exchange to another, but it does expect to do better for itself and its stock holders on the NYSE.
Dion Cornett, Red Hat's VP of investor relations, explained in a Linux-Watch interview that Red Hat was making the move for two major reasons.
The first is that NYSE stocks tend to have less volatility than stocks on the NASDAQ or other exchanges. For those of who don't follow stocks, this means that a stock's price doesn't tend to jump up or down quite so quickly.
This will benefit Red Hat and its owners not simply by helping them sleep at night, but by making it easier for the company to properly expense and execute stock options for employees. Companies, after a storm of recent stock option scandals, in general are being far more careful and precise with their option accounting.
In addition, businesses must now expense their stock options. Thus, if you can better estimate the value of your stock options, you can lower your option expenses. While options aren't as significant a factor as they were in the dot com days in most companies' bottom lines, they still are no small matter in determining many technology companies' bottom lines.
In the case of Red Hat, which uses the Black-Scholes model to value its options, decreasing volatility for its options will eventually lower Red Hat's costs and consequently raises its profits.
The other reason is that NYSE has courted Red Hat. The NYSE is making a concerted effort to make people see it as the stock market for the next generation. In the 90s and early 00s, the NASDAQ has been perceived as the technology stock market. If the NYSE has its way, it will become known as the new technology market.
At the same time, Cornett comments that the NASDAQ has become the stock market for "older technology companies such as Microsoft, Oracle, and Novell." These three companies are, of course, among Red Hat's greatest rivals.
According to Cornett, the NYSE is also hoping to woo other new technology companies to them, such as SugarCRM and MySQL. By having Red Hat, the leading Linux company, on the NYSE, it's hoped that other open-source companies will follow.
The NYSE also is "dedicating resources to Red Hat and promoting it with NYSE investors," Cornett said. While he couldn't give numbers, he did say that "many multiples of our [NYSE] listing fee (the fee a company pays for being listed for sale on a stock exchange) is being spent on Red Hat." In short, Cornett said that while he had nothing bad to say about NASDAQ, "The NYSE made us an offer we couldn't refuse."
Both the NASDAQ and the NYSE are also Red Hat customers in a small way. Cornett also said that the NYSE is making a major IT upgrade and that Red Hat is hopeful of gaining more business from the NYSE. At this time, the majority of NYSE transactions are handled by Solaris UltraSPARC systems.
Red Hat frippery
Besides the usual frippery that comes with a major stock exchange event, including Red Hat CEO Matthew Szulik ringing the bell to open the exchange, the NYSE will be spending a great deal of money on Red Hat advertising.
Some of it is just silly good fun. For example, you'll find a 10-foot-high red fedora on the NYSE building tomorrow morning, and street teams will be traveling around Manhattan on Red Hat-branded Segway scooters handing out 20,000 Red Hat baseball caps. The NYSE and Red Hat, though, will also be placing full-page Red Hat ads in all editions of the Wall Street Journal, and in the Investor Business Daily, and anyone who uses Bloomberg for financial news will be unable to avoid images of Red Hats.
Red Hat is expected to make an early report on its third quarter results on Dec. 21st to avoid posting them in the week between Christmas and New Year's. Additionally, the company's stock ticker name will change from "RHAT" on the NASDAQ to "RHT" on the NYSE, starting at 9:30 AM Eastern, Dec. 12.
-- Steven J. Vaughan-Nichols
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