IBM buys Linux giant Red Hat to thrive in the cloud

Andrew Cummings
October 29, 2018

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.

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". "It changes everything about the cloud market", said Ginni Rometty, chairman and chief executive officer of International Business Machines Corp., in a statement Sunday.

According to AFP, the deal remains subject to Red Hat shareholder approval as well as US SEC regulatory approvals.

IBM is buying cloud computing company Red Hat for $34 billion, its biggest acquisition ever, the company announced on Sunday.

IBM (NYSE:IBM) and Red Hat (NYSE:RHT) jointly announced today that IBM would be acquiring Red Hat in a deal valuing the company at $190 per share, representing a staggering nearly 63% premium on Red Hat's closing price Friday.

Raleigh, N.C. -based Red Hat makes software for the open-source Linux operating system, an alternative to proprietary software made by Microsoft.

The acquisition illustrates how older technology companies are turning to dealmaking to gain scale and fend off competition, especially in cloud computing, where customers using enterprise software are seeking to save money by consolidating their vendor relationships.

The Red Hat deal represents an admission by Rometty that in-house growth wasn't going to be enough to keep IBM from falling permanently behind in a market that is growing in importance and size.

IBM hopes with the acquisition it will be one of, if not the leading "Hybrid Cloud" providers in the market.

IBM was founded in 1911 and is known in the technology industry as Big Blue, a reference to its once ubiquitous blue computers.

To be sure, IBM is no stranger to acquisitions. It also acquired Canadian business software maker Cognos in 2008 for $5 billion.

Venero's message for IBM CEO Rometty: "The simple message for Ginni Rometty is, 'Don't forget the channel partners who helped bring Red Hat to the level that it is today in enterprise accounts'".

Cloud computing refers to the delivery of computing services, including storage and software, over the internet to achieve economies of scale. As part of that deal, Dell inherited an 82 percent stake in virtualization software company VMware Inc.

Rometty said IBM "paid a very fair price".

Both companies took pains to say that the Red Hat ethos and commitment to the open-source community would continue.

Goldman Sachs Group Inc. and JPMorgan Chase & Co. advised IBM on the deal and provided financing. Paul, Weiss, Rifkind, Wharton & Garrison LLP provided legal advice to IBM.

"IBM is committed to being an authentic multi-cloud provider, and we will prioritize the use of Red Hat technology across multiple clouds", Arvind Krishna, senior vice president of IBM Hybrid Cloud, said in a statement.

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