IBM’s biggest ever acquisition: Big Blue to buy Red Hat for $34bn

29 Oct 2018

Red Hat CEO Jim Whitehurst with IBM CEO Ginni Rometty. Image: IBM

Red Hat to become part of IBM’s Hybrid Cloud division in a bid to take a leadership position in a $1trn market.

IBM, known in the tech industry as Big Blue and traditionally synonymous with its ranks of executives in navy blue suits, has added to its sartorial elegance with the acquisition of Linux software giant Red Hat for close to $34bn.

The acquisition is IBM’s largest ever and the third-biggest in the history of US technology.

‘The acquisition of Red Hat is a game-changer’

Prior to the acquisition, Red Hat had a market cap of around $20.5bn.

IBM will pay $190 a share in cash for Red Hat, a 65pc premium over Red Hat’s closing price of $116.68 per share on Friday (26 October).

Crucially, the deal accelerates IBM’s business model, making the tech giant the number-one hybrid cloud provider in a $1trn cloud market, with optimal growth potential as 80pc of corporate workloads have yet to move to the cloud.

Open source fuelled the cloud revolution

“The acquisition of Red Hat is a game-changer,” said Ginni Rometty, IBM chair, president and CEO.

“It changes everything about the cloud market. IBM will become the world’s number-one hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.

“Most companies today are only 20pc along their cloud journey, renting compute power to cut costs. The next 80pc is about unlocking real business value and driving growth. This is the next chapter of the cloud. It requires shifting business applications to hybrid cloud, extracting more data and optimising every part of the business, from supply chains to sales.”

Red Hat was founded in 1993 in Raleigh, North Carolina, by Bob Young and Marc Ewing, and pretty much spearheaded the open source software revolution. It strategically cemented its position in the move to the open source enterprise with the acquisition of JBoss. Globally, it employs 12,000 people and last year recorded revenues of $2.9bn.

In 2014, Red Hat put Waterford on the global tech map with the acquisition of local company FeedHenry for €63.5m in cash. Last year it announced 60 new jobs as part of a €12.7m investment to make Waterford its global hub for R&D.

IBM has a long association with Ireland, going back more than six decades to 1956 when it first opened an office here. Today, the company has global innovation as well as local commercial activities here, and employs roughly 3,000 people in Ireland.

“Open source is the default choice for modern IT solutions, and I’m incredibly proud of the role Red Hat has played in making that a reality in the enterprise,” said Jim Whitehurst, president and CEO of Red Hat.

“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.”

Both IBM and Red hat have been partners in the cloud for more than 20 years, with IBM breaking ranks with tech giants that looked askance at open source to become an early supporter of Linux. This early embrace of Linux to develop enterprise-grade systems has served the tech giant well and Linux innovations have become core technologies within IBM’s $19bn hybrid cloud business.

Both companies have major partnerships with global cloud providers such as Amazon Web Services, Microsoft Azure, Google Cloud, Alibaba and many more.

IBM and Red Hat said they 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.

“Today’s announcement is the evolution of our longstanding partnership,” said Rometty. “This includes our joint Hybrid Cloud collaboration announcement in May, a key precursor in our journey to this day.”

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years