IBM acquires Red Hat to take on Amazon and Microsoft

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

In a deal sure to shake up the worlds of open-source software and cloud computing alike, IBM today announced a deal to acquire Red Hat Inc. for a stunning $34 billion.

"Red Hat could save IBM's lack of developer traction", said Stu Miniman, an analyst with SiliconANGLE Media Inc.'s market research group Wikibon.

Founded in 1993, Red Hat specializes in Linux operating systems, the most popular type of open-source software, which was developed as an alternative to proprietary software made by Microsoft Corp.

The acquisition - IBM's largest ever - highlights the company's efforts to increase subscription-based software offerings as demand for mainframe servers and software declines.

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.

Ginni Rometty, IBM's chairman, president and CEO, says the acquisition would make IBM the world's No. 1 hybrid cloud provider - that's when companies use a mix of on-site, private and third-party public cloud services.

IBM said on Sunday (Oct 28) it has reached a deal to buy software company Red Hat for US$34 billion, a move the computing giant said would enhance its cloud offerings, a key area of growth.

Red Hat will remain a distinct unit in IBM's Hybrid Cloud unit and provide Big Blue with growth, software revenue and a way to grow the cloud business.

The acquisition has been approved by the board of directors at both companies, but it must still be approved by Red Hat shareholders and is subject to regulatory approvals and other closing conditions.

"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. IBM will purchase all shares of Red Hat for $190 each, a 63% premium over the company's current valuation.

"Our unwavering commitment to open source innovation remains unchanged", Whitehurst said in the email text released by the company.

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. "In doing so, IBM will support open source technology wherever it runs, allowing it to scale significantly within commercial settings around the world".

IBM intends to maintain Red Hat's headquarters, facilities, brands and practices. This is the next chapter of the cloud. Whitehurst also will join IBM's senior management team and report to Rometty.

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.



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