IBM to acquire Red Hat for US$34 billion

Ginni Rometty IBM CEO

USA tech giant IBM has agreed to a deal with Red Hat, an open source cloud software provider, to purchase it for $34 billion, making the 107-year-old United States firm the world's biggest hybrid cloud provider.

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", IBM chairman Ginni Rometty said in a prepared statement.

Under the deal, Red Hat will be incorporated into IBM's Hybrid Cloud division.

"Knowing first-hand how important open, hybrid cloud technologies are to helping businesses unlock value, we see the power of bringing these two companies together, and are honored to advise IBM and commit financing for this transaction", JPMorgan CEO Jamie Dimon said in a statement. "It requires shifting business applications to hybrid cloud, extracting more data and optimizing every part of the business, from supply chains to sales". Companies today are already using multiple clouds. It has faced years of revenue declines, as it transitions its legacy computer maker business into new technology products and services.

The purchase is created to bolster IBM's floundering cloud business.

Red Hat CEO Jim Whitehurst said IBM will give it scale while preserving an open source commitment.

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IBM's emphasis of hybrid clouds as the reason for the deal shows the company thinks it will be better off tending to workloads that users put in clouds other than its own.

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

"With this acquisition, IBM will remain committed to Red Hat's open governance, open source contributions, participation in the open source community and development model, and fostering its widespread developer ecosystem". You aren't about to see Red Hat's operating system vanish. "Red Hat customers that want to remain on-premises are a large upsell market".

The two brands also re-affirmed that the open-source nature of Red Hat will be maintained, and codes will still be contributed to the community.

With the deal, IBM and Red Hat are clearly setting their sights on major enterprise companies that have struggled to keep up with younger challengers built around more nimble IT strategies.

Although the deal was approved by both companies' boards, it's not expected to close until well into next year. 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.

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