In Major Acquisition, IBM Will Acquire Open-Source Software Company Red Hat

"It changes everything about the cloud market", Ginni Rometty, IBM's chairman, president and chief executive officer, said in a prepared statement.

IBM (NYSE:IBM) and Red Hat (NYSE:RHT) jointly announced today that IBM would be acquiring Red Hat in a deal valuing the company at $190 per share, representing a staggering nearly 63% premium on Red Hat's closing price Friday.

Founded in 1993, Red Hat specializes in Linux operating systems, the most popular type of open-source software, which was developed as an alternative to proprietary software made by Microsoft Corp.

And yes, both companies are aware of the impact this will have on Linux and open source at large.

"Our unwavering commitment to open source innovation remains unchanged", Whitehurst said in the email text released by the company. "In addition, IBM and Red Hat 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", says International Business Machines.

IBM will pay $190 per Red Hat share in cash.

"Powered by IBM, we can dramatically scale and accelerate what we are doing today", Red Hat president and CEO Jim Whitehurst wrote in an email to employees today.

IBM CEO Ginni Rometty dissed the public cloud and noted that most companies are 20 percent along the cloud journey and "renting compute power to cut costs". This will likely not impact IBM's stature in the public cloud where the companies have a presence, but not almost as much as the private cloud. Companies today are already using multiple clouds.

The purchase is created to bolster IBM's floundering cloud business. "These are new products for IBM to sell". While it might be all good on the business side of things, such acquisitions do make open source advocates worry, especially users of the Fedora Linux distribution that's based on and supported by Red Hat.

Guggenheim Partners LLC and Morgan Stanley were financial advisers to Red Hat, while Skadden, Arps, Slate, Meagher & Flom LLP offered legal advice to the company on the deal. At the same time, Red Hat will benefit from IBM's hybrid cloud and enterprise IT scale in helping expand their open source technology portfolio to businesses globally.

"IBM is committed to being an authentic multi-cloud provider, and we will prioritise the use of Red Hat technology across multiple clouds" said Arvind Krishna, Senior Vice President, IBM Hybrid Cloud. It's well-known for trying to integrate acquisitions into its huge organization, a process known internally as "blue-washing". One analyst, Trip Chowdhry at Global Equities Research, suggested in a note to clients that China, whose infrastructure is built on Linux, might not grant its approval.

The deal between IBM and Red Hat is expected to close in the second half of 2019.

  • Eleanor Harrison