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UPDATE 1-Citigroup says Red Hat "tempting" takeover target

March 26 (Reuters) - Citigroup said Red Hat Inc RHT.N, which posted strong quarterly results on Wednesday, is a potential takeover target as the Linux software maker's strategy attracts the attention of larger technology firms.

Citigroup and RBC Capital raised their price targets on Red Hat, which also forecast full-year results in line with market estimates. [nN25414673]

“We believe Red Hat is a tempting acquisition target,” Citigroup analyst Brent Thill wrote in a note to clients.

“Red Hat noted strength in customers converting from free Linux to paid-for subscriptions... as well as a broader adoption of the higher-priced Red Hat stack,” Thill, who kept a “hold” rating on the stock, said.

The software maker has started a “free-to-pay” marketing campaign to persuade businesses that they would save money by subscribing to its services because they would not have to hire as many Linux programmers.

“As Red Hat continues to gain more success on its overall stack adoption... there is no question that the larger technology vendors are paying attention to Red Hat’s strategy,” said Thill, who raised his price target on the stock to $17 from $16.

RBC Capital Markets analyst Robert Breza said strength in the quarter was driven by strong growth across all products and geographies.

Breza raised his price target on shares of Red Hat -- whose rivals include Novell Inc NOVL.O and Microsoft Corp MSFT.O -- to $18 from $16 and maintained a "sector perform" rating.

Shares of the Raleigh, North Carolina-based company were trading up 18 percent at $17.69 Thursday morning on the New York Stock Exchange.

(Reporting by Poojya Trivedi in Bangalore; Editing by Anne Pallivathuckal)

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