Published: Mon, October 29, 2018
Business | By Eloise Houston

IBM to Acquire Red Hat in Huge Tech Deal

IBM to Acquire Red Hat in Huge Tech Deal

IBM further says, "Upon closing of the acquisition, Red Hat will join IBM's Hybrid Cloud team as a distinct unit, 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. It changes everything about the cloud market", IBM CEO Ginni Rometty said in a statement.

"Most companies today are only 20 per cent along their cloud journey, renting compute power to cut costs", she said.

Though not exactly the oldest, Red Hat is indeed one of the pioneers in the Linux and open source world. Open-source software such as the Linux operating system, the web browser Firefox and big-data analysis software such as Apache Hadoop has gradually become the bedrock for many applications, even in large enterprises.

It's a bold stroke because Linux has become the most common OS in public clouds. While some of that has been from divestitures, most is from declining sales in existing hardware, software and services offerings, as the company has struggled to compete with younger technology companies.

In 2015, International Business Machines (IBM) announced that it would move an expansive network of law enforcement data to the cloud for use by law enforcement agencies across North America.

Finally, the firms say that Red Hat will remain independent.

"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.

In an unexpected deal, IBM has agreed to purchase Linux Distributor Red Hat Inc for $33.4 billion, the 3rd lagest deal of its kind in recent history.

Red Hat is based in Raleigh. Between them, IBM and Red Hat have contributed more to the open source community than any other organisation. Subscription revenue from that category increased 31 percent to $196 million during Red Hat's second fiscal quarter, compared to an eight-percent increase in revenue from infrastructure software.

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".

And the complication? The deal is being pitched as making IBM and Red Hat the premier hybrid cloud company. It intends to maintain Red Hat's headquarters, facilities, brands and practices. In particular, they said they are committed to open-source efforts as Patent Promise, GPL Cooperation Commitment, the Open Invention Network and the LOT Network.

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.

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