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Red Hat raises cool cash
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February 4, 2000: 6:29 p.m. ET
Linux company obtains $160 million through share offering to bolster position
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NEW YORK (CNNfn) - Red Hat Inc., a bellwether for the rapidly growing Linux operating system, added about $160 million in cash to its coffers through a secondary stock offering today, giving it more muscle to compete against Microsoft Corp. and Sun Microsystems.
Red Hat (RHAT: Research, Estimates), based in Research Triangle Park, N.C., sold 2.75 million shares of stock at $95 per share through Goldman Sachs & Co., Chase H&Q, Thomas Weisel Partners, and J.P. Morgan & Co. Before today's stock sale, Red Hat had only about $21 million in cash to fund its expansion.
At the same time, several Red Hat officers and directors, including Chairman Robert Young and CEO Matthew Szulik, sold a total of 1.25 million company shares, pocketing almost $119 million for themselves. While most people regard $119 million as a large sum, it represents a small percentage of their holdings. The Red Hat officers and directors who sold shares continue to hold about 71 million shares of the company's stock, a stake now worth about $6.74 billion.
Investors' enthusiasm for Linux-related stocks has been a bonanza for Red Hat, which went public last August and had revenue of just $12.6 million in the nine months ended Nov. 30, 1999. Red Hat's shares rose 271 percent on the company's first day of trading, and later reached a high of 151 5/16.
A Red Hat spokesman declined to comment on what the company will do with its new cash, beyond the boilerplate language contained in a filing made last month with the Securities and Exchange Commission. In that filing, the company said it plans to use the proceeds of the offering for working capital and geographic expansion.
Red Hat, which completed the acquisitions of two privately held companies last month, said in the filing that some of the money from the stock sale could be used for future acquisitions.
Linux-based operating systems are "open source software," meaning that they can be downloaded from the Internet for free and modified and resold with few restrictions. Many corporations buy Red Hat's version of Linux, rather than downloading it for free from the Internet, because Red Hat's product comes with support and is more conveniently packaged.
Linux now has a much smaller presence than competing operating systems, such as Windows and UNIX, because only a small amount of commercial software is written for Linux, and little technical support is available. Despite these obstacles, Linux has expanded rapidly, and captured 17 percent of new license shipments of server operating systems in 1998, according to IDC. 
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Red Hat
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