In what could be a defining moment for the whole cloud industry, IBM announced that it has agreed to acquire American multinational software company, Red Hat, and in the process become the World’s number 1 Hybrid Cloud Provider.
IBM to acquire Red Hat
The acquisition that includes Red Hat debt is valued at $34 billion and is the biggest that IBM has ever done. It also underlines IBM changing a business model that it’s CEO Ginni Rometty may have been long wanting for amidst declining sales. The company has seen its revenue decline since 2012 as its main businesses of hardware, software and services have failed to cope with up with younger competitors.
This is what Ginni Rometty has to say on the deal,
“The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,” said Ginni Rometty. “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.
On the other hand Jim Whitehurst, CEO, Red Hat, mentioned,
“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. “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.”
The acquisition of Redhat is a shot in the arm for IBM who has been looking to realign its offerings with concentrations on cloud, artificial intelligence and security software of late.
IBM Red Hat acquisition details
As per Bloomberg report, IBM will pay $190 a share in cash for Red Hat, which is 63 percent premium over Red Hat’s closing price of $116.68 last Friday. However, justifying the premium, Rometty said that IBM “paid a very fair price. This is a premium company. If you look underneath, this is strong revenue growth, strong profit strong free cash flow,” she said.
The deal certainly looks a good trade for IBM as revenue at Red Hat is expected to hit $3 billion this year thanks to the company’s Red Hat Enterprise Linux product that has attracted business from large customers. As per industry sources, last quarter the company reported a record 11 contracts valued at over $5 million each and 73 over $1 million.
The deal is expected to be completed in the second half of 2019.