Management has done a great job transitioning the business and the next 12-18 months will finally return the company to profitability. The road has been hard, and the story has been tough to understand by the street. Long time KD shareholders have been patient, and our reward is right in front of us.
The dumping of shares by IBM followed by rebuilding a new investor base has been difficult. The financials have been storied and loaded with transition costs and declining revenue from reengineering unprofitable contracts which accounted for 40% of all revenue. This hard work has been done and now is the time to realize the profits and equity gains from this work.
Introducing a major acquisition would be a major strategic shift for the company with no heads up to investors. Management has maintained that a good credit rating is important to KD customers and that a capital allocation strategy will be addressed once the company returns to profitability.
An acquisition of DXC, a declining business, does not fit with the business strategy and would not be prudent. Adding leverage, complexity, and consolidation costs would mask the great work the management team has done. Kyndryl is on the verge of profitability and organic revenue growth, why screw it up?
The only strategy that would make sense is if Apollo bought both KD and DXC. Take the transaction private, capitalize it correctly, consolidate/restructure, and then return to the public market after the combination is successfully completed.
The next several weeks will be interesting and as a long time KD shareholder I hope the Board makes the right call by either not doing a deal with Apollo/DXC or let Apollo risk their capital by buying KD and let the combination risk happen on the backs of Apollo/DXC shareholders and not KD shareholders.
DXC has two buisnesses, GBS and GIS. For what its worth GBS is a good growing software buisness and in my opinion justifies the whole cost of the aquasition. I suspect that Apollo intends to buy GBS and sell it at a much higher valuation. But I don't think DXC wants to do this unless they sell the GIS arm with it. As such Apollo is looking for someone with experince in IT infrastructure to buy DXC's GIS arm. Hence why Kyndryl is involved. Yes DXC is ugly but they're also Kyndryl only competition on a number of accounts. Take for example American Airlines a customer the KD regularly touts. DXC is the other service provider there and runs th…