IBM to acquire open-source software firm Red Hat for $34B

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The 107-year-old United States 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.

The Red Hat deal is IBM's biggest acquisition yet for a reason: The stakes are too high and IBM has already been bumped out of the big cloud conversation by Amazon Web Services, Google Cloud Platform and Microsoft Azure. 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 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 of hybrid cloud at IBM. And now, one of the biggest enterprise technology companies on the planet has agreed to partner with us to scale and accelerate our efforts, bringing open source innovation to an even greater swath of the enterprise.

It's a bold stroke because Linux has become the most common OS in public clouds. Companies today are already using multiple clouds. 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. "It changes everything about the cloud market". Red Hat will still be helmed by Jim Whitehurst and Red Hat's current management team.

In an email to Red Hat employees, Red Hat president and CEO Jim Whitehurst said the company will be a "distinct unit within IBM" and that he'll report directly to Rometty.

"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".

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IBM says it intends to keep Red Hat's headquarters in Raleigh. 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. "Together we can become *the* leading hybrid cloud solutions provider". I'm sure I am not alone is fearing that IBM could ultimately ruin Red Hat and its offerings.

Now you know the appeal of Red Hat.

In a joint statement made by the two companies, "The acquisition of Red Hat is a game-changer".

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. The deal is expected to close in the second half of 2019.

Red Hat itself has been missing analyst targets and also guided below expectations for their next quarter, raising concerns that the company itself was losing out to rivals.

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