Published: Mon, October 29, 2018
Money | By Wilma Wheeler

IBM to acquire Red Hat in $34B blockbuster deal

IBM to acquire Red Hat in $34B blockbuster deal

In its early days, the company enjoyed the advantage of being used extensively by the U.S. military as the Department of Defence has certified its Red Hat Enterprise Linux product for use.

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. Presumably the acquisition will have to jump various regulatory hurdles before it is set in stone.

IBM has hailed the agreement as the most significant tech acquisition of 2018, while CEO Ginni Rometty said the move "changes everything about the cloud market".

IBM is hoping the deal will help it catch up with Amazon.com Inc, Alphabet Inc and Microsoft in the rapidly growing cloud business.

IBM says it will acquire North Carolina-based open-source software company Red Hat in a $34 billion stock deal.

IBM said Red Hat will join its Hybrid Cloud team as a distinct unit, "preserving the independence and neutrality of Red Hat's open source development heritage and commitment, current product portfolio and go-to-market strategy, and unique development culture". Hybrid cloud offers both local and online cloud services for customers. This is the next chapter of the cloud.

"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. Red Hat's share price was 28 percent down over the past six months. The somewhat revered old man of the technology world, it has been a leader in the past but has struggled for relevance in recent times. The latter can be monetised by piping them into other clouds as native services, which is what IBM and Red Hat have announced they plan to do. I'm sure I am not alone is fearing that IBM could ultimately ruin Red Hat and its offerings.

"Today's announcement is the evolution of our long-standing partnership", said Rometty.

The two companies emphasized the growing trend of companies to use multiple public and private clouds, which they said will require technologies such as Linux, software containers for enabling applications to run unchanged on different computers and cloud, and the container management software Kubernetes. Red Hat meanwhile reported its earnings back in September which were also disappointing and its share price has dropped 19% since then. While it might be all good on the business side of things, such acquisitions do make open source advocates worry, especially users of the Fedora Linux distribution that's based on and supported by Red Hat. "This includes our joint Hybrid Cloud collaboration announcement in May, a key precursor in our journey to this day".

Rometty also noted IBM's long-term relationship in working with Red Hat.

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