IBM to acquire open-source software firm Red Hat for $34B


The deal will see IBM acquire all of the issued and outstanding common shares of Red Hat for $190.00 per share in cash, more than $70 above the $116.68 at which Red Hat was trading on close of business Friday. "It changes everything about the cloud market", Ginni Rometty, IBM's chairman, president and chief executive officer, said in a prepared statement.

IBM has seen revenue decline by nearly a quarter since Rometty, 61, took the CEO role in 2012. Its 2013 acquisition of Softlayer gave the company a public cloud toehold, but all the growth in public cloud computing is coming from the big three USA providers, including the above-mentioned companies and Google Cloud. The stock has dropped 19 per cent this year, giving it a market value of US$114 billion. Earnings reported on the 16th disappointed and since then the share price has shed 14%.

In that sense, this business strategy could make sense for both companies, or at least for IBM mostly.

With the acquisition of Red Hat, IBM will look to innovate faster for cloud-based architectures with the open source community.

But IBM has apparently decided this organic transformation isn't happening quickly enough and has decided a nice, juicy bit of M&A is required to hasten the process. His conglomerate, Berkshire Hathaway Inc., cut its stake in the company by 94 per cent, while increasing its investment in Apple Inc.

The Red Hat acquisition by IBM is the third-biggest in the history of U.S. technology. And yes, enterprises will go from Red Hat-a proverbial Switzerland of software and the cloud-to an IBM-Red Hat combination and one throat to choke. "This gives them an asset that looks forward and not backwards".

"IBM has always been a proprietary software and services company, and this is an open-source play", said Venero, who praised Red Hat for its strong channel partnership in enterprise accounts.

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"We will scale what Red Hat has deeply into many more enterprises than they're able to get to".

"IBM is committed to being an authentic multi-cloud provider, and we will prioritise the use of Red Hat technology across multiple clouds" said Arvind Krishna, Senior Vice President, IBM Hybrid Cloud. This is a premium company.

Entrepreneur Bob Young founded Red Hat in 1993 to sell Linux and Unix software accessories. Or CentOS which takes Red Hat and debrands it. The company said at the time it believes the slowdown has "bottomed out". Red Hat's share price was 28 percent down over the past six months. "This is not about cost synergies at all", Rometty said in the interview.

JPMorgan Chase & Co advised IBM on the deal and provided financing.

Red Hat is based in Raleigh.

While IBM's current position as a public cloud provider doesn't seem that impressive as compared to Amazon, Microsoft, and Google, the company plans to offer their combined technology to link their in-house cloud and other third-party cloud solutions.