IBM to acquire open-source software company Red Hat

IBM is seen at the Mobile World Congress in Barcelona Spain

"The acquisition of Red Hat is a game-changer".

In a webcast, IBM Senior Vice President of Hybrid Cloud Arvind Krishna and Red Hat Executive Vice President and President of Products and Technologies Paul Cormier echoed the spokesperson's statement, stating that all of Red Hat's existing partnerships with other cloud providers and all of Red Hat's open source development projects-including Red Hat Enterprise Linux, the OpenShift implementation of Kubernetes-based containers, and the OpenStack cloud computing platform-would continue as before. The tech giant will be purchasing all of Red Hat's issued and outstanding common shares for $190.00 per share in cash.

IBM shares closed on October 26 at $124.79, just off the 52-week low of $123.71.

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. Earlier this year, chairman Ginni Rometty claimed the 107-year-old United States company's reinvention - from a legacy computer maker into a cloud computing and artificial intelligence technology company - was now "largely complete".

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.

Acquiring Red Hat makes IBM "a credible player in cloud now - both private and hybrid cloud", Bloomberg Intelligence analyst Anurag Rana said.




IBM will be suspending its share repurchases program in 2020 and 2021, the statement claimed, but it was also said that the dividend will not be touched.

The market was buoyed by the $34-billion United States deal, with tech stocks moving higher, partly on speculation there may be more bidders for the software company, or that other big players will be looking for targets to position themselves in cloud computing. Prior to this announcement, Microsoft bought GitHub which was interpreted as quite a big deal, while Salesforce bought Mulesoft. "Red Hat has always been supportive of partners", he said.

"The next 80% percent is about unlocking real business value and driving growth". The deal is described in the companies' press release as an evolution of the long-standing partnership. Imagine us helping even more customers benefit from the choice and flexibility afforded by hybrid and multi-cloud. This is the next chapter of the cloud. Those projects included developing Linux for the enterprise and more recently, on hybrid cloud infrastructure. "IBM intends to maintain Red Hat's headquarters, facilities, brands and practices", IBM said. The culture will remain as well-though it's possible IBM and Red Hat may cross-pollinate a bit more than they have in the past. 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.

For its fiscal 2018, ended February 28, Red Hat reported revenue of $2.92 billion, up 21 percent from fiscal 2017, and net income of $258.8 million for the year.

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

The deal is expected to officially close sometime in 2019.

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