IBM Closes Its $34 Billion Acquisition of Red Hat

Daniel Fowler
July 10, 2019

IBM and Red Hat on Tuesday announced the closure of the $34 billion transaction under which IBM acquired all of the issued and outstanding common shares of Red Hat for $190 per share in cash. Red Hat's technology is strategic, though, particularly if you buy into the idea of open-source platforms like OpenStack and OpenShift being more portable than equivalents from the big three public cloud vendors - AWS, Microsoft and Google.

Under the deal, Red Hat will now be a unit of IBM's hybrid cloud division, according to the original announcement.

IBM's acquisition of software provider Red Hat has reportedly now been finalized.

IBM representatives say that Red Hat will not change the management, led by CEO Jim Whitehurst.

T-Mobile US Inc. will replace Red Hat Inc.in the S&P 500 index at the open on Monday, S&P Dow Jones Indices said late Tuesday.

But IBM CEO Ginni Rometty is going all-in on a hybrid cloud - combining plain cloud computing - i.e., putting all your data on somebody else's servers - and keeping some what's essential to the business in-house.

"All the clouds, even though they have the same underlying technology, they're all different". The company allows customers to integrate new and existing IT applications, develop cloud-native applications, standardize on operating system, and automate, secure, and manage complex environments.

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The deal will make Red Hat part of IBM's Cloud division, the two companies said when the deal was announced a year ago. Red Hat's fiscal year 2019 revenue was $3.4 billion, up 15 percent year-over-year, while its fiscal first quarter 2020 revenue was $934 million, up 15 percent year-over-year.

And that's the where the - astronomical - acquisition figure for Red Hat comes from. Together, IBM and Red Hat will accelerate innovation by offering a next-generation hybrid multicloud platform.

IBM's cloud business now lags behind market leaders such as Amazon and Microsoft.

"As organizations seek to increase their pace of innovation to stay competitive, they are looking to open source and a distributed cloud environment to enable a new wave of digital innovation that wasn't possible before". It will maintain its independence and neutrality, insists IBM. Over the next five years, IDC expects enterprises to invest heavily in the cloud.

IBM and Red Hat have deep open source values and experience.

On the other hand, Red Hat started as a Linux shop in 1993 and has grown along with the exponential use of the free and open-source kernel everywhere on the web. Today, Linux is the most used platform for development. Rometty said no job or cost cuts are planned at Red Hat. But some analysts are hopeful about the Red Hat deal's opportunity to bring in new business.

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