IBM acquires Red Hat for $34bn

October 29, 2018 | 11:22

Tags: #acquisition #financial #ginni-rometty #jim-whitehurst #linux

Companies: #ibm #red-hat

IBM has announced its intention to acquire Linux software giant Red Hat in a deal valued at $34 billion - making it the largest software company acquisition in history.

International Business Machines (IBM), colloquially known as 'Big Blue' for its prodigious size and company colour scheme, was founded in 1911 as the Computing-Tabulating-Recording (CTR) Company through the amalgamation of companies founded by Julius E. Pitrap, Alexander Dey, Herman Hollerith, and Willard Bundy by Charles Ranlett Flint to take advantage of each inventor's creations: a computing scale, a dial recorder, an electric tabulating machine, and punch-clock time-keeping system respectively. While the company would make machinery including cheese and meat slicers, it was its computing and tabulating machines that proved the most popular: By 1924 it had been rebranded to International Business Machines and included world governments among its clients, which would provide controversy when German subsidiary Dehomag would provide tabulating equipment to Adolf Hitler's Third Reich for the tracking of persecuted groups in World War II. Today, the company's focus is on computing - particularly cloud computing.

Red Hat, by contrast, is a considerably newer company. Founded in 1995 by Bob Young and Mark Ewing, combining the former's Linux and Unix focused catalogue business ACC Corporation and the latter's Red Hat Linux software distribution, Red Hat has grown to become the largest open-source software company in history with an annual revenue of $2.9 billion as of its 2017 financial filings. That's a number even Big Blue can't ignore, and the company has announced its intention to buy Red Hat - forming a subsidiary which will struggle to dodge the nickname 'Big Purple Hat.'

'The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,' claims IBM chair, president, and chief executive Ginni Rometty of the deal. '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 20 percent along their cloud journey, renting compute power to cut costs. The next 80 percent 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.'

'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,' adds Jim Whitehurst, president and chief executive 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.'

The deal sees IBM paying $190 per share for a total of $34 billion - making it the largest software company acquisition in history. Red Hat will, following completion of the deal, act as a wholly-owned but distinct subsidiary of IBM, operating within the company's Hybrid Cloud division. The company has pledged it will work hard at 'preserving the independence and neutrality of Red Hat's open source development heritage and commitment, current product portfolio and go-to-market strategy, and unique development culture,' retaining current leader Whitehurst and Red Hat's existing management team.

The deal has been approved by both IBM and Red Hat's respective directors, and is awaiting approval by Red Hat shareholders and regulatory authorities ahead of a planned late-2019 closing date.

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