IBM buys Linux giant Red Hat to thrive in the cloud

29 October, 2018, 17:28 | Author: Dave Hampton
  • S&P Global Ratings cut the grade for IBM by one notch following the massive acquisition of cloud computing firm Red Hat for a staggering $34 billion in cash

IBM announced today that it will acquire open source firm Red Hat for approximately $34 billion in cash and debt. Or CentOS which takes Red Hat and debrands it.

Even Microsoft Azure is now more than half Linux and Red Hat dominates those installs. Presumably the acquisition will have to jump various regulatory hurdles before it is set in stone. "It changes everything about the cloud market", IBM Chief Executive Ginni Rometty said.

The deal, once it goes through, will make IBM top Hybrid Cloud provider in an emerging $1 trillion growth market.

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.

In May the two companies unveiled a collaboration agreement to target the hybrid cloud sector through technology and services integration in a move to accelerate cloud adoption.

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This announcement is the largest software company acquisition to date.

IBM said it will make the purchase with cash, credit and bridge lines, but did note that it would be disciplined to preserve its credit rating.

Red Hat is one of the pioneers to commercialize open-source software, in which code is made freely available for others to redistribute and modify.

IBM's decision to acquire Red Hat for US$34 billion is a bold stroke, an admission of weakness and a mighty complication. Yet IBM and VMware are partners, with vSphere-powered clouds being one of IBM's bigger cloud successes.

IBM hopes the acquisition will help it expand its position in the enterprise cloud computing market to better compete with the likes of Amazon, Google and Microsoft.

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Both companies stressed the importance of cloud computing to the deal. "In doing so, IBM will support open source technology wherever it runs, allowing it to scale significantly within commercial settings around the world".

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.

Red Hat now has more than 95 offices worldwide, including major software-engineering groups in San Francisco and Boston and a public-policy operation in Tyson's Corner, Va., near the nation's capital. "Imagine Red Hat with greater resources to grow into the opportunity ahead of us", Whitehurst told employees in an email Sunday afternoon. Red Hat governance, brands, headquarters and facilities will also be retained.

"Our unwavering commitment to open source innovation remains unchanged".

Red Hat shareholders still have to approve the deal, but the board of directors at each company has signed off, and it's hard to imagine strong protests from Red Hat shareholders given the premium over its most recent closing price.

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