IBM to acquire software company Red Hat for $34 billion

IBM is reportedly nearing a deal to acquire Red Hat, the software company valued at $20 billion

The 107-year-old USA company will pay Red Hat's shareholders a 62pc premium for their shares in a bid to accelerate its growth into the emerging $1trillion growth market for cloud-based computing systems.

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. With that said, IBM has always been an open source proponent, so maybe it will work out well. Microsoft this year acquired open source software platform GitHub for $7.5 billion; chip maker Broadcom Inc agreed to acquire software maker CA Inc for almost $19 billion; and Adobe Inc agreed to acquire marketing software maker Marketo for $5 billion. It has more or less survived lately on the server business but the rise of the cloud and cloud providers has seen its name overshadowed and nearly forgotten.

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. The statement goes on to predict that the deal will accelerate IBM's revenue growth, margin and free cash flow within one year of closing. Red Hat's stock is down 28 percent over the past six months through Friday, according to data compiled by Bloomberg.

"Open source is the default choice for modern IT solutions, and I'm incredibly proud of the role Red Hat has played in making that a reality in the enterprise", added Jim Whitehurst, president and CEO of Red Hat.

Paul Cormier, Red Hat's executive vice president and president of products and technologies, hailed the move.




Red Hat has over 12,000 workers worldwide.

Red Hat is one of the pioneers to commercialize open-source software, in which code is made freely available for others to redistribute and modify.

Adhering to the adage of not fixing what's not broken, Red Hat will continue to operate as a separate unit.

IBM will pay $190 per Red Hat share in cash. "Together we can become the leading hybrid cloud solutions provider". "IBM intends to maintain Red Hat's headquarters, facilities, brands and practices". "Joining forces with IBM will provide us with a greater level of scale, resources and capabilities to accelerate the impact of open source as the basis for digital transformation and bring Red Hat to an even wider audience - all while preserving our unique culture and unwavering commitment to open source innovation".

At the same time, sales last quarter overall missed analysts' expectations and the forecast for the current quarter also fell short, fueling concerns Red Hat may be losing deals to rivals and growth may be slowing. The deal is expected to close in the second half of 2019.

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