Published: Mon, October 29, 2018
Money | By Ethel Goodwin

IBM buys Linux giant Red Hat to thrive in the cloud

IBM buys Linux giant Red Hat to thrive in the cloud

"The acquisition of Red Hat is a game-changer", said Ginni Rometty, chairman and chief executive officer of International Business Machines Corp., in a statement Sunday. Shares of IBM slumped in premarket USA trading. This prevents portability of data and applications across multiple clouds, data security in a multi-cloud environment and consistent cloud management. Its 2013 acquisition of Softlayer gave the company a public cloud toehold, but all the growth in public cloud computing is coming from the big three USA providers, including the above-mentioned companies and Google Cloud. "Together we can become *the* leading hybrid cloud solutions provider". "Red Hat has always been supportive of partners", he said.

"Most companies today are only 20 per cent along their cloud journey, renting compute power to cut costs".

This provided the company with a large, stable customer during the early days of its expansion and 10 years ago the US Army had the largest installed base of Red Hat Linux.

Red Hat has expanded from a developer of Linux-based business software to being involved in most places you might find B2B open source software, including the cloud and telecoms.

Under the deal, IBM will acquire all of the issued and outstanding common shares of Red Hat for $190 per share in cash. That's a 63 per cent premium over Red Hat's closing price of US$116.68 per share on Friday.

IBM said that both companies will continue to build partnerships with multiple cloud providers, including AWS, Microsoft's Azure, Google Cloud, Alibaba, and others, in addition to IBM Cloud. Whitehurst also will join IBM's senior management team and report to Rometty. 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. With the rise of proprietary cloud computing infrastructure and services, however, Red Hat itself might be feeling the pressure to find new sources of revenue. "They understand and value how and why we are different and they are committed to allowing us to remain Red Hat while scaling and accelerating all that makes us great with their resources".

At the same time, sales last quarter overall missed analysts' expectations and the forecast for the current quarter also fell short, fuelling concerns Red Hat may be losing deals to rivals and growth may be slowing. Meanwhile open source big data vendors Cloudera and Hortonworks have chose to merge and earlier this year Salsforce dropped $6.5 billion on MuleSoft to power its Integration Cloud.

The purchase illustrates how older technology companies are turning to dealmaking to gain scale and fend off competition.

Like this: