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

by Ben Pena October 29, 2018, 6:54
In Major Acquisition, IBM Will Acquire Open-Source Software Company Red Hat

"The acquisition of Red Hat is a game-changer", IBM chairman Ginni Rometty said in a prepared statement.

Both Red Hat and IBM said the combined company will accelerate "hybrid multi-cloud adoption".

"Knowing first-hand how important open, hybrid cloud technologies are to helping businesses unlock value, we see the power of bringing these two companies together, and are honored to advise IBM and commit financing for this transaction", JPMorgan CEO Jamie Dimon said in a statement. Microsoft this year acquired open source software platform GitHub for $7.5 billion; chip maker Broadcom Inc agreed to acquire software maker CA Inc for almost $19 billion; and Adobe Inc agreed to acquire marketing software maker Marketo for $5 billion.

It's a bold stroke because Linux has become the most common OS in public clouds. The company has been seeing declining revenue for around 5 years as it struggles to gain ground on Microsoft and Amazon, only seeing some growth in the last few quarters, largely due to its legacy mainframe business.

If you ask IBM, the deal is all about the cloud.

"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", said Jim Whitehurst, President and CEO, Red Hat.

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But it's hard to argue the IBM-Red Hat logic. Red Hat gives IBM software heft and an OpenStack playbook that can rival VMware, which incidentally has become quite cozy with AWS.

IBM has been a strong support of Linux, working with Red Hat to make it more bulletproof for large enterprises, not to mention IBM's own $19 billion hybrid cloud business.

Anticipating concerns that the acquisition would endanger Red Hat's appeal as an agnostic provider of open-source software, IBM said it will "remain committed to Red Hat's open governance, open source contributions, participation in the open source community and development model, and fostering its widespread developer ecosystem".

Red Hat will continue to be led by Whitehurst and the vendor's current management team while Whitehurst will also join IBM's senior management team and report to Rometty. It intends to maintain Red Hat's headquarters, facilities, brands and practices.

IBM revealed that it will be spending $34 billion for this acquisition, which should close in the second half of 2019 if it passes regulations.

For all that, maintaining Red Hat's standing and culture could prove hard for the company once known as Big Blue. "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".

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