IBM to Acquire Red Hat in Huge Tech Deal

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

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

It underscores IBM Chief Executive Ginni Rometty's efforts to expand the company's subscription-based software offerings, as it faces slowing software sales and waning demand for mainframe servers.

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. Open-source software such as the Linux operating system, the web browser Firefox and big-data analysis software such as Apache Hadoop has gradually become the bedrock for many applications, even in large enterprises.

Which is where the deal shows IBM's weakness because its own IaaS remains unsophisticated compared to rivals and efforts to renovate it have struggled. "In doing so, IBM will support open source technology wherever it runs, allowing it to scale significantly within commercial settings around the world". Between them, IBM and Red Hat have contributed more to the open source community than any other organisation.

Why is IBM willing to pay that much for Red Hat?

"Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs", Rometty said. Hybrid cloud relates to the linking of public and private cloud platforms.

Red Hat will continue to be led by its president and CEO Jim Whitehurst and its current management team.

IBM scored dead last in Gartner's recently published its Magic Quadrant for Cloud Infrastructure as a Service (IaaS) Worldwide 2018, being presented as a poorly executing niche player.




IBM, which has a market valuation of $114 billion, has seen revenue decline by nearly a quarter since Rometty took the CEO role in 2012.

Anticipating concerns that the acquisition would endanger Red Hat's appeal as an agnostic provider of open-source software, IBM said it 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".

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.

Big Blue announced the deal here, in the past hour, and Red Hat's take is here.

"Red Hat was previously able to position itself as the Switzerland for on-premises computing", Mueller said. Imagine Red Hat reaching all corners of the world, with even deeper customer and partner relationships than we have today.

The boards of both companies have approved the deal, though it is still subject to Red Hat shareholder approval, they said.

IBM revealed that it will be spending $34 billion for this acquisition, which should close in the second half of 2019 if it passes regulations.

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