IBM Is Buying Red Hat for $34 Billion in Blockbuster Software Deal

IBM to acquire Red Hat in $34 billion deal Red Hat to remain ‘distinct unit

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

A logo of IBM is seen at the Mobile World Congress in Barcelona, Spain February 28, 2018.

In what may be the most significant tech acquisition of the year, IBM says it will acquire open-source software company Red Hat for approximately $34 billion.

That's a 63 percent premium over Red Hat's closing price of $116.68 per share on Friday.

"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. "It changes everything about the cloud market", said Ginni Rometty, IBM Chairman, President and Chief Executive Officer. This is the next chapter of the cloud.

"Knowing first-hand how important open, hybrid cloud technologies are to helping businesses unlock value, we see the power of bringing these two companies together, and are honored to advise IBM and commit financing for this transaction", JPMorgan CEO Jamie Dimon said in a statement. It sells features and support on a subscription basis to its corporate customers.

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. Microsoft this year acquired open source software platform GitHub for $7.5 billion; chip maker Broadcom Inc agreed to acquire software maker CA Inc for almost $19 billion; and Adobe Inc agreed to acquire marketing software maker Marketo for $5 billion.

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

Both companies' boards have approved the deal but it is of course subject to shareholder and regulatory approvals with the acquisition expecting to close in the second half of 2019. IBM, meanwhile, has watched its revenue decline in recent years.

Microsoft completed its $7.5 billion acquisition of open source software company GitHub just two days ago. IBM would compete in the cloud market by offering an alternative that won't lock customers down to the provider's tools and services. However, companies that are deploying workloads on public cloud providers tend to prefer Ubuntu Linux for that work, and that coupled with acceleration toward the cloud in general has stalled revenue growth in that category.

The Raleigh, N.C. -based software company will operate as a distinct unit within IBM's Hybrid Cloud team. "IBM intends to maintain Red Hat's headquarters, facilities, brands and practices".

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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