IBM buys software company Red Hat for US$34b

29 October, 2018, 06:55 | Author: Elaine Woods
  • IBM to acquire Red Hat for $34 billion.                  Gabriel Bouys  AFP  Getty Images

It also expects to use Red Hat's open source roots to its advantage - in theory, this encourages companies to move to the cloud when they'd otherwise be wary of being locked in. "The acquisition of Red Hat is a game-changer", Ginni Rometty, IBM's chairman and chief executive, said in a statement.

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

"Imagine Red Hat with the ability to invest even more and faster to accelerate open source innovation in emerging areas". 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. "It requires shifting business applications to hybrid cloud, extracting more data and optimising every part of the business, from supply chains to sales". IBM, meanwhile, has watched its revenue decline in recent years. However, research shows that 80 per cent of business workloads have yet to move to the cloud, held back by the proprietary nature of today's cloud market. Red Hat's share price was 28 percent down over the past six months.

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. Hell, Red hat is a billion dollar company - yes, billion with a "B".

Upon closing of the acquisition, Red Hat will join IBM's Hybrid Cloud team as a distinct unit, with the aim of maintaining the "independence and neutrality" of Red Hat's open source development heritage.

IBM will pay $190 per Red Hat share in cash.

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IBM paid $34 billion for Red Hat and a chance to be a cloud player-private, public and hybrid-with an ultimate goal of managing multiple clouds in the enterprise.

"IBM is committed to being an authentic multi-cloud provider, and we will prioritise the use of Red Hat technology across multiple clouds" said Arvind Krishna, Senior Vice President, IBM Hybrid Cloud.

IBM said Red Hat would continue to be led by Red Hat CEO Jim Whitehurst and Red Hat's current management team. "IBM intends to maintain Red Hat's headquarters, facilities, brands and practices", the company said in a statement. While it might be all good on the business side of things, such acquisitions do make open source advocates worry, especially users of the Fedora Linux distribution that's based on and supported by Red Hat.

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 CEO Jim Whitehurst: Why do the deal with IBM?

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

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