IBM is acquiring software company Red Hat for $34 billion

Ginni Rometty IBM CEO

Ginni Rometty IBM CEO

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.

IBM said Red Hat will continue to build and enhance Red Hat's current partnerships, including those with major cloud providers, such as Amazon Web Services, Microsoft Azure, Google Cloud, Alibaba and more, in addition to the IBM Cloud. "It changes everything about the cloud market", said Ginni Rometty, IBM chairman, president and chief executive.

"Most companies today are only 20% along their cloud journey, renting compute power to cut costs", she said.

Raleigh, N.C. -based Red Hat makes software for the open-source Linux operating system, an alternative to proprietary software made by Microsoft. While things are all status quo for now, big companies do have the tendency to pull the rug from under such projects which, compared to other open source software, often need more resources to serve a large user base. "It requires shifting business applications to hybrid cloud, extracting more data and optimising every part of the business, from supply chains to sales". It has faced years of revenue declines, as it transitions its legacy computer maker business into new technology products and services. Both Red Hat and IBM both participate in the enterprise and private cloud market together, already.

IBM and Red Hat will be strongly positioned to address this issue and accelerate hybrid multi-cloud adoption.

Now you know the appeal of Red Hat. Hell, Red hat is a billion dollar company - yes, billion with a "B".

"Powered by IBM, we can dramatically scale and accelerate what we are doing today", Red Hat president and CEO Jim Whitehurst wrote in an email to employees today.

"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.

"Our unwavering commitment to open source innovation remains unchanged". Red Hat gives IBM software heft and an OpenStack playbook that can rival VMware, which incidentally has become quite cozy with AWS. "IBM intends to maintain Red Hat's headquarters, facilities, brands and practices".

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.

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.

Red Hat shareholders still have to approve the deal, but the board of directors at each company has signed off, and it's hard to imagine strong protests from Red Hat shareholders given the premium over its most recent closing price.

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