IBM to Acquire Red Hat for $34 Billion

IBM to Acquire Red Hat for $34 Billion

IBM to Acquire Red Hat for $34 Billion

IBM (NYSE:IBM) and Red Hat (NYSE:RHT), the world's leading provider of open source cloud software, announced today that the companies have reached a definitive agreement under which IBM will acquire all of the issued and outstanding common shares of Red Hat for $US190.00 per share in cash, representing a total enterprise value of approximately $US34 billion.

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

Buying Red Hat to give it management tools across multiple IaaS clouds, and probably an easier route to market for its software delivered as SaaS, therefore means a chance to turn IaaS weakness towards IBM's strengths.

"Today is a banner day for open source". Open-source software such as the Linux operating system, the web browser Firefox and big-data analysis software such as Apache Hadoop has gradually become the bedrock for many applications, even in large enterprises. The company has been seeing declining revenue for around 5 years as it struggles to gain ground on Microsoft and Amazon, only seeing some growth in the last few quarters, largely due to its legacy mainframe business. IBM would compete in the cloud market by offering an alternative that won't lock customers down to the provider's tools and services.

IBM's decision to acquire Red Hat for US$34 billion is a bold stroke, an admission of weakness and a mighty complication.

Red Hat has been in business since 1993 and has expanded its offerings from Linux to a number of open source middleware products.

IBM and Red Hat are no strangers, having been partners for two decades.

"Importantly, Red Hat is still Red Hat".

"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.

In an email to Red Hat employees, Red Hat president and CEO Jim Whitehurst said the company will be a "distinct unit within IBM" and that he'll report directly to Rometty. In particular, they said they are committed to open-source efforts as Patent Promise, GPL Cooperation Commitment, the Open Invention Network and the LOT Network.

The NSA uses Red Hat Linux for the most part to run its XKEYSCORE program - an application that The Intercept, the website run by journalist Glenn Greenwald, describes as NSA's Google for private communications.

Moreover, it's not inconceivable other companies could step in with higher bids that Red Hat shareholders might demand to be taken seriously. "IBM intends to maintain Red Hat's headquarters, facilities, brands and practices", the company said in a statement.

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.

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