IBM to acquire open-source software firm Red Hat for $34B

IBM to acquire open-source software firm Red Hat for $34B

IBM to acquire open-source software firm Red Hat for $34B

IBM is acquiring Red Hat, a famous distributor of open-source software for a reported bid of US$32 billion (~RM142 billion).

IBM said Red Hat will continue to build and enhance Red Hat's current partnerships, including those with major cloud providers, such as Amazon Web Services, Microsoft Azure, Google Cloud, Alibaba and more, in addition to the IBM Cloud. "The acquisition of Red Hat is a game-changer", Ginni Rometty, IBM's chairman and chief executive, said in a statement.

Buying Red Hat to give it management tools across multiple IaaS clouds, and probably an easier route to market for its software delivered as SaaS, therefore means a chance to turn IaaS weakness towards IBM's strengths. The question is how IBM's might and largesse in the digital world will influence the open source OS. 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.

The company will be paying through cash and debt, as opposed to share exchange, but did not specify the proportions. The statement goes on to predict that the deal will accelerate IBM's revenue growth, margin and free cash flow within one year of closing.

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.

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"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", added Jim Whitehurst, president and CEO of Red Hat.

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. Red Hat's stock is down 28 percent over the past six months through Friday, according to data compiled by Bloomberg.

"IBM is committed to being an authentic multi-cloud provider, and we will prioritize the use of Red Hat technology across multiple clouds" said Arvind Krishna, Senior Vice President, IBM Hybrid Cloud. Since the day we chose to bring open source to the enterprise, our mission has remained unchanged. You see, International Business Machines has acquired the open source darling, Red Hat. 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. The two are "committed" to open source, including contributions to the community.

Red Hat itself has been missing analyst targets and also guided below expectations for their next quarter, raising concerns that the company itself was losing out to rivals.

The deal remains subject to Red Hat shareholder approval as well as regulatory approvals.

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