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IBM announces plan to acquire Red Hat for $34bn

by Mark Tyson on 29 October 2018, 12:21

Tags: IBM (NYSE:IBM), RED

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At the weekend IBM announced that it had reached an agreement to acquire Red Hat. Provided all regulatory hurdles are satisfied, the acquisition will complete in H2 2019. IBM will purchase all of the issued and outstanding common shares of Red Hat for $190.00 per share in cash, making the deal worth approx $34 billion. Red Hat shares were $116.68 each at close on Friday, so its shareholders will surely start the week with some cheer. This is IBM's biggest deal ever and the third largest in the history of US Tech companies.

"The acquisition of Red Hat is a game-changer. It changes everything about the cloud market," said Ginni Rometty, IBM Chairman, President and CEO. "IBM will become the world's #1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses."

The current Red Hat CEO, Jim Whitehurst, will join IBM's senior management team. Whitehurst made his own statement about the deal, saying that as part of IBM, Red Hat will benefit from "a greater level of scale, resources and capabilities to accelerate the impact of open source". IBM and Red Hat have already worked closely together for approx 20 years.

Red Hat currently has partnerships with IBM's cloud rivals such as Amazon Web Services, Microsoft Azure, Google Cloud, Alibaba and more. However, IBM says that it is "committed to being an authentic multi-cloud provider," and will support open source wherever it runs.

As mentioned in the intro, this is the third largest US tech industry deal in history, charting below the $67 billion merger between Dell and EMC in 2016, and JDS Uniphase's $41 billion acquisition of optical-component supplier SDL in 2000. This year the biggest deals so far seem to be in open source software, as evidenced by Microsoft's $7.5 billion purchase of GitHub, and Salesforce's $6.5 billion acquisition of MuleSoft.

With this purchase planned for 2019, IBM will cautiously pause share buybacks for 2020 and 2021, but the dividend won't be affected.



HEXUS Forums :: 10 Comments

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Interesting! I knew IBM have concentrated on both cloud and open source software - so I hope this wont adversely affect the development of Fedora. In an ideal world - given that Fedora is a developmental strand of the Red Hat enterprise solutions, any effect will be positive - more resources - but time will tell.
peterb
Interesting! I knew IBM have concentrated on both cloud and open source software - so I hope this wont adversely affect the development of Fedora. In an ideal world - given that Fedora is a developmental strand of the Red Hat enterprise solutions, any effect will be positive - more resources - but time will tell.

IBM are keeping Red Hat a separate entity, so I don't see any real changes coming. At the end of the day, the growth at Red Hat is exponential, so they won't want to do anything to change that.
MrRockliffe
IBM are keeping Red Hat a separate entity, so I don't see any real changes coming. At the end of the day, the growth at Red Hat is exponential, so they won't want to do anything to change that.
I doubt that. The temptation to milk RedHat for cash will be too great. My prediction is that the cost of service contracts will rise, and the frequency of updates will fall. It will become harder to buy RedHat support contracts without buying loads of other IBM products you don't need. Over time most of RedHat's most talented engineers will leave out of frustration or culture clashes, and in 5 years time RedHat will become just another name in the history of open source that got eaten.

Ten years ago when I was working for Nokia, I was a DBA for a source code database. (Telelogic Synergy). It was fairly innovative for it's time and suited Nokia's needs quite well. Then IBM acquired it. The support quality dropped, the prices went up, and if you needed any on site support they started charging you €1,000/day for consultants who where in fact recent graduates who knew very little.
chrestomanci
I doubt that. The temptation to milk RedHat for cash will be too great. My prediction is that the cost of service contracts will rise, and the frequency of updates will fall. It will become harder to buy RedHat support contracts without buying loads of other IBM products you don't need. Over time most of RedHat's most talented engineers will leave out of frustration or culture clashes, and in 5 years time RedHat will become just another name in the history of open source that got eaten.

Ten years ago when I was working for Nokia, I was a DBA for a source code database. (Telelogic Synergy). It was fairly innovative for it's time and suited Nokia's needs quite well. Then IBM acquired it. The support quality dropped, the prices went up, and if you needed any on site support they started charging you €1,000/day for consultants who where in fact recent graduates who knew very little.

I guess we'll see, but considering how IBM have paid through the roof for Red Hat shares, and we've already had an email from Jim to say he'll remain the CEO of Red Hat, I can't see it changing. The IBM CEO came on stage today to announce that not a single thing will change going forward, other than they'll be taking on Red Hat culture.
MrRockliffe
I guess we'll see, but considering how IBM have paid through the roof for Red Hat shares, and we've already had an email from Jim to say he'll remain the CEO of Red Hat, I can't see it changing. The IBM CEO came on stage today to announce that not a single thing will change going forward, other than they'll be taking on Red Hat culture.
Big blue + red hat = Big Purple?