IBM set to acquire North Carolina-based Red Hat in $34B deal

Adjust Comment Print

"The acquisition of Red Hat is a game-changer", IBM CEO Ginni Rometty said in a press release.

Terms of the deal - unveiled following a weekend of media speculation - will see Big Blue acquire all of the issued and outstanding common shares of Red Hat for US$190.00 per share in cash, in an agreement expected to be finalised in the second half of 2019. Meanwhile open source big data vendors Cloudera and Hortonworks have made a decision to merge and earlier this year Salsforce dropped $6.5 billion on MuleSoft to power its Integration Cloud.

Today it has 12,600 workers worldwide in more than 35 countries.

The breakup fee for the deal, which would be among the largest on record in the tech sector, has yet to be announced and a high fee would also deter Red Hat from entertaining other buyers.

Based in Raleigh, North Carolina, Red Hat charges fees to its corporate customers for custom features, maintenance and technical support, offering IBM a lucrative source of subscription revenue.

Considering Red Hat's position as the leading Linux distribution provider in the business world, as well as the top operating system provider for cloud computing, that's probably a very good idea.

IBM said it would continue "Red Hat's open governance, open source contributions, participation in the open source community and development model, and fostering its widespread developer ecosystems".

The hybrid cloud - when companies use a mix of on-site, private and third-party public cloud services - is an emerging $1 trillion opportunity that the companies want to be prepared for, Rometty said. Joining forces with IBM offers all of that, years ahead of when we could have achieved it alone. Red Hat gives IBM software heft and an OpenStack playbook that can rival VMware, which incidentally has become quite cozy with AWS.

It's not immediately obvious to me how the marriage between IBM and Red Hat brings combined value to the market.

"Importantly, Red Hat is still Red Hat. We are surprised by this multiple given that historically IBM has been extremely disciplined with its acquisitions".

"Our unwavering commitment to open source innovation remains unchanged".

But DiFucci questioned whether the Red Hat will be able to remain neutral under IBM's control. IBM is acquiring Red Hat for our awesome people and our incredibly special culture and approach to making better software. "IBM is acquiring Red Hat for our incredible people and our incredibly special culture and approach to making better software". While some of that has been from divestitures, most is from declining sales in existing hardware, software and services offerings, as the 107-year-old company has struggled to compete with younger technology companies.

"Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs", Rometty added. "The next 80% is about unlocking real business value and driving growth". This is the next chapter of the cloud.

Mr Whitehurst also will join IBM's senior management team and report to Ms Rometty.