Wednesday, 14 November, 2018

IBM to Acquire Red Hat for $34 Billion

IBM to acquire Red Hat for $34 billion.                  Gabriel Bouys  AFP  Getty Images IBM to acquire Red Hat for $34 billion. Gabriel Bouys AFP Getty Images
Kenneth Drake | 29 October, 2018, 15:28

"IBM is committed to being an authentic multi-cloud provider, and we will prioritise the use of Red Hat technology across multiple clouds", said Arvind Krishna, senior vice president of hybrid cloud at IBM. However, research shows that 80 per cent of business workloads have yet to move to the cloud, held back by the proprietary nature of today's cloud market.

"The acquisition of Red Hat is a game-changer", said IBM boss Ginni Rometty. Red Hat, which is publicly traded, has a market cap of $20.5 billion.

"Most companies today are only 20% along their cloud journey, renting compute power to cut costs", she said. "This is the next chapter of the cloud".

Though not exactly the oldest, Red Hat is indeed one of the pioneers in the Linux and open source world. Sure, open source folks will worry about IBM's purchase, but Big Blue has been a good steward of open source.

Red Hat's flagship product, Red Hat Enterprise Linux, was the operating system of choice for private data center operators over the last decade or so, firmly establishing Linux as a viable alternative to Microsoft Windows Server and commercial Unix operating systems among those operating their own data centers. IBM says it now expects to become the world's leading hybrid cloud provider-a combination of local and external cloud services.

The biggest acquisition was the $67 billion merger between Dell and EMC in 2016 and JDS Uniphase's $41 billion acquisition of optical-component firm SDL in 2000. This puts the enterprise linux distributor at a valuation of approximately $34 billion dollars making it one of the largest technology acquisitions in history.

Red Hat is based in Raleigh. Red Hat gives IBM software heft and an OpenStack playbook that can rival VMware, which incidentally has become quite cozy with AWS.


"The path for hybrid cloud just got easier", Paul Cormier, president of Red Hat Products and Technology, tells Barron's.

As far and fast as cloud computing is embedding itself into the enterprise, there remain many cloud-resistant applications and services.

"Importantly, Red Hat is still Red Hat".

Founded in 1993, Red Hat launched its famous version of Linux OS a year later, becoming a pioneering proponent of the open source movement that arose to counter giants like Microsoft whose models were based on keeping their source code secret. The two companies 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" open-source licenses and initiatives, according to the companies' joint statement.

Although the deal was approved by both companies' boards, it's not expected to close until well into next year.

Moreover, it's not inconceivable other companies could step in with higher bids that Red Hat shareholders might demand to be taken seriously.

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