September 8, 1999 8:40 AM PDT

Red Hat stock surge creates billionaires

Red Hat Software, a driving force behind the commercial proliferation of the freely available Linux operating system, has made three of its investors paper billionaires in less than a month.

As previously reported, Frank Batten Jr., Red Hat's largest investor and the patriarch of privately held Landmark Communications, has seen his 15 million shares in the company rise to more than $1 billion. Today those shares climbed to a value of $1.84 billion, based on the company's stock price of $122.81 early this morning.

Red Hat's stock continued its climb today, soaring by nearly 15 points to reach 122.8125 in mid-morning trading, making Red Hat founder and chief technical officer Marc Ewing and CEO Robert Young billionaires as well, at least on paper.

Batten's stock ownership, held individually and in trust, is disclosed in documents filed with the Securities and Exchange Commission.

Ewing owns 9.09 million shares in the company, while Young owns 9.08 million shares.

The documents filed with the SEC also disclose that the shares held by both Ewing and Young are not options that vest over time. Both own the shares outright.

The surge in wealth depends, of course, on Red Hat's soaring IPO. The company went public on August 11 at $14. It rose to $52 on the first day and has continued to climb. Yesterday's stock price jumped $23 as Wall Street analysts began coverage of the North Carolina company and the company's post-IPO "quiet period" ended, leading to a spate of publicity.

Similar to other hot IPOs in recent years, Red Hat's main product, a version of the Linux operating system, sells for very little and can be downloaded for free. In the long run, the North Carolina-based company expects to get profits from providing consulting services to Linux users and from advertising on its Web site.

The company is in many ways a beneficiary of the collective talent of the open source movement. Hundreds of programmers, only a relatively small number of them on the Red Hat payroll, have been responsible for the development of Linux, including the version sold by Red Hat. In a very real sense, Red Hat's financial success is based on the labors of others.

Red Hat did attempt to reward that work by offering 5,000 such developers a chance to participate in its IPO--although some who wanted to join in turned out not to be eligible. About 1,150 of the 1,300 who wanted to were able to buy stock at the original price of $14, Ewing said today.

While Batten, Ewing, and Young lead the pack as far as individual investors go, institutions have fared well under the IPO. Greylock Limited Partnership, a venture capital group, owns 8.7 million shares, worth roughly $939 million, while Benchmark Capital's holds 5.8 million shares valued at $626 million. Among other executives, COO Matthew Szulik owns 2.7 million shares worth $292 million.

 

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