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IBM buying North Carolina-based Red Hat in $34B deal

IBM buying North Carolina-based Red Hat in $34B deal

Red Hat President and CEO Jim Whitehurst called the deal "a banner day for open source" and pointed to his company's long history of partnering with IBM.

"IBM is committed to being an authentic multicloud provider, and we will prioritize the use of Red Hat technology across multiple clouds", said Arvind Krishna, senior vice president for IBM Hybrid Cloud in a statement.

Both Red Hat and IBM said the combined company will accelerate "hybrid multi-cloud adoption".

"IBM's commitment to keeping the things that have made Red Hat successful - always thinking about the customer and the open source community first - make this a tremendous opportunity for not only Red Hat but also open source more broadly", Paul Cormier, Red Hat's president for products and technologies, said in a statement. While some of that has been from divestitures, most is from declining sales in existing hardware, software and services offerings, as the company has struggled to compete with younger technology companies.

IBM, which has a market valuation of $114 billion, has seen revenue decline by nearly a quarter since Rometty took the CEO role in 2012.

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IBM's decision to acquire Red Hat for US$34 billion is a bold stroke, an admission of weakness and a mighty complication. The company has just announced a bid to acquire a fellow granddaddy, this time in the Linux space: Red Hat. Red Hat will become part of IBM's hybrid cloud team as a "distinct unit", with the same headquarters in Raleigh, North Carolina, and its brands. Red Hat's stock is down 28 percent over the past six months through Friday, according to data compiled by Bloomberg.

Anticipating concerns that the acquisition would endanger Red Hat's appeal as an agnostic provider of open-source software, IBM said it 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". "Joining forces with IBM will provide us with a greater level of scale, resources and capabilities to accelerate the impact of open source as the basis for digital transformation and bring Red Hat to an even wider audience - all while preserving our unique culture and unwavering commitment to open source innovation". I'm sure I am not alone is fearing that IBM could ultimately ruin Red Hat and its offerings.

Red Hat shareholders still have to approve the deal, but the board of directors at each company has signed off, and it's hard to imagine strong protests from Red Hat shareholders given the premium over its most recent closing price.

Now you know the appeal of Red Hat. The deal, which is also subject to regulatory review, 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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