IBM Is Prepping To Buy Red Hat For RM142 Billion

29 October, 2018, 06:55 | Author: Mary Valdez
  • Ginni Rometty IBM CEO

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

IBM has unveiled plans to acquire open source specialists Red Hat, in a blockbuster US$34 billion deal created to bolster the tech giant's hybrid cloud capabilities.

"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", said Paul Cormier, President, Products and Technologies, Red Hat.

IBM, on the other hand, has struggled to remain relevant in the public cloud era.

Raleigh, N.C. -based Red Hat makes software for the open-source Linux operating system, an alternative to proprietary software made by Microsoft. Red Hat, which is publicly traded, has a market cap of $20.5 billion.

"Importantly, Red Hat is still Red Hat".

Headquartered in Raleigh, North Carolina, Red Hat charges fees to its corporate customers for custom features, maintenance and technical support, offering IBM a lucrative source of subscription revenue.

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IBM's Rometty added that most companies are now being held back in their cloud transformation due to closed platforms. This will likely not impact IBM's stature in the public cloud where the companies have a presence, but not almost as much as the private cloud.

Red Hat CEO Jim Whitehurst said IBM will give it scale while preserving an open source commitment.

The company will be paying through cash and debt, as opposed to share exchange, but did not specify the proportions. By effectively buying itself a cloud that spans several IaaS rivals, IBM shows its own IaaS ambitions have dimmed. But that is a shrinking business. Since the day we chose to bring open source to the enterprise, our mission has remained unchanged.

At the same time, Red Hat will aim to leverage IBM's hybrid cloud and enterprise IT scale in helping expand open source technology offerings to businesses globally.

In an email to Red Hat employees, Red Hat president and CEO Jim Whitehurst said the company will be a "distinct unit within IBM" and that he'll report directly to Rometty.

In its early days, the company enjoyed the advantage of being used extensively by the United States military as the Department of Defence has certified its Red Hat Enterprise Linux product for use. It's well-known for trying to integrate acquisitions into its huge organization, a process known internally as "blue-washing". It is expected to close in the latter half of 2019. One analyst, Trip Chowdhry at Global Equities Research, suggested in a note to clients that China, whose infrastructure is built on Linux, might not grant its approval.

The deal remains subject to Red Hat shareholder approval as well as regulatory approvals.

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