IBM to acquire Red Hat for $34 billion. Gabriel Bouys AFP Getty Images
29 October, 2018, 15:30
IBM promises that Red Hat will continue as an independent unit but under its own Hybrid Cloud team. Red Hat has over 12,000 workers worldwide. Presumably the acquisition will have to jump various regulatory hurdles before it is set in stone. "It changes everything about the cloud market", Ginni Rometty, IBM's chairman, president and chief executive officer, said in a prepared statement.
Overall, this step is being seen as a move by IBM to establish itself as a bigger force in the hybrid cloud market.
IBM Corp said on Sunday it had agreed to acquire US software company Red Hat Inc for $34 billion, including debt, as it seeks to diversify its technology hardware and consulting business into higher-margin products and services. As opposed to cloud-only services provided by other companies.
The boards of both companies have approved the deal, though it is still subject to Red Hat shareholder approval, they said.
"Most companies today are only 20 per cent along their cloud journey, renting compute power to cut costs", she said.
The statement went on to claim that IBM had been an early and long-time supporter of Linux, collaborating with Red Hat to help it develop enterprise-grade Linux back in the early 2000s, "and more recently to bring enterprise Kubernetes and hybrid cloud solutions to customers". "We are surprised by this multiple given that historically IBM has been extremely disciplined with its acquisitions".
One of IBM's main competitors, Dell Technologies Inc, made a big bet on software and cloud computing two years ago, when it acquired data storage company EMC for $67 billion.
"Imagine Red Hat with the ability to invest even more and faster to accelerate open source innovation in emerging areas".
This announcement is the largest software company acquisition to date. "This is the next chapter of the cloud". Moreover, he said, "IBM immediately bolsters its position in today's multicloud world".
"We will scale what Red Hat has deeply into many more enterprises than they're able to get to". "It requires shifting business applications to hybrid cloud, extracting more data and optimising every part of the business, from supply chains to sales".
Founded in 1993, Red Hat launched its famous version of Linux OS a year later, becoming a pioneering proponent of the open source movement that arose to counter giants like Microsoft whose models were based on keeping their source code secret. The question is how IBM's might and largesse in the digital world will influence the open source OS.
For all that, maintaining Red Hat's standing and culture could prove hard for the company once known as Big Blue. The companies expect to complete the acquisition sometime in the second half of 2019.
Guggenheim Partners LLC and Morgan Stanley were financial advisers to Red Hat, while Skadden, Arps, Slate, Meagher & Flom LLP offered legal advice to the company on the deal.
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