IBM acquires Red Hat in $34B deal

IBM has agreed to buy software company Red Hat in what will be the largest software acquisition in history.

IBM, which has a market capitalisation of $114 billion USD, will pay $190 per share in cash for Red Hat. It will therefore pay a total of $34 billion.

The acquisition is IBM’s largest by far; in comparison, Canadian business intelligence company Cognos was acquired for $5 billion in 2007.

Red Hat launched 25 years ago as a specialist in Linux software. Its main offering is open-source software for enterprise, with other products including storage, middleware, applications and management products. Support, training and consulting services make up a large proportion of its revenue. In 2012, it became the first open-source company worth over $1 billion.

IBM hopes that the deal will help it to compete with Amazon Web Services, Google Cloud and Microsoft Azure in cloud computing. Last week Chinese tech group Alibaba also threw its hat in the ring by opening new data centres in London.

Red Hat will continue to operate as a distinct unit under IBM’s Hybrid Cloud. Furthermore, it will maintain its existing offices, staff, brands and practices.

“The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,” said Ginni Rometty, president of IBM.

“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.”

Red Hat president and CEO Jim Whitehurst said: “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.”