IBM to acquire Red Hat for US$34 billion

Red Hat

Red Hat

Acquiring Red Hat makes IBM "a credible player in cloud now", Bloomberg Intelligence analyst Anurag Rana said.

IBM and Red Hat have been partnering on enterprise-grade Linux for over 20 years, and the firms describe this acquisition as an evolution of that strategy. Presumably the acquisition will have to jump various regulatory hurdles before it is set in stone.

Red Hat will become a unit of IBM's Hybrid Cloud division while its CEO Jim Whitehurst will report directly into IBM CEO Ginni Rometty who apparently has no plans to go anywhere. These include its $2bn purchase of cloud infrastructure provider Softlayer in 2013, which forms the basis of IBM's own cloud computing business.

IBM Corp said on Sunday it had agreed to acquire USA software company Red Hat Inc for $34 billion, including debt, as it seeks to diversify its technology hardware and consulting business into higher-margin products and services.

In May the two companies unveiled a collaboration agreement to target the hybrid cloud sector through technology and services integration in a move to accelerate cloud adoption.

Buying Red Hat to give it management tools across multiple IaaS clouds, and probably an easier route to market for its software delivered as SaaS, therefore means a chance to turn IaaS weakness towards IBM's strengths. It earned its distinction for being one of the first companies to make a living from open source software the way it was meant to be, by offering services in relation to operating and maintaining Linux systems, especially on the business side.

Rometty said IBM "paid a very fair price".

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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.

IBM to acquire Red Hat for $34 billion.

IBM, however, is not a natural fit for IaaS because so much of its value proposition is tied up in its proprietary platforms and software.

Those subscription-based revenues are something IBM wants as it looks to beef up its cloud and enterprise offerings so it can better compete against the likes of Amazon, Google, and Microsoft in the sector. Red Hat's stock had closed at $116.68 a share Friday, down from a peak in June of about $175. Its 2013 acquisition of Softlayer gave the company a public cloud toehold, but all the growth in public cloud computing is coming from the big three USA providers, including the above-mentioned companies and Google Cloud. "In doing so, IBM will support open source technology wherever it runs, allowing it to scale significantly within commercial settings around the world". Red Hat will continue to be led by Jim Whitehurst and Red Hat's current management team.

In addition, the combined entity will "remain committed" to the "continued freedom" of open source, via such efforts as Patent Promise, GPL Cooperation Commitment, the Open Invention Network and the LOT Network.

Rometty also noted IBM's long-term relationship in working with Red Hat.

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