Data Driven Futures

IBM buys Red Hat for record $34 billion

Written by Peter Walker

IBM has agreed to buy open source cloud software provider Red Hat for a record tech acquisition price of approximately $34 billion.

A statement explained that the deal - approved by both boards, but still subject to shareholder and regulatory approval - will accelerate IBM’s revenue growth, gross margin and free cash flow within 12 months of closing, estimated during the latter half of next year.

Upon closing, 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, current product portfolio and go-to-market strategy.

Red Hat will continue to be led by Jim Whitehurst and its current management team. Whitehurst also will join IBM’s senior management team and report to Ginni Rometty. IBM also intends to maintain Red Hat’s headquarters, facilities, brands and practices.

“The acquisition of Red Hat is a game-changer, it changes everything about the cloud market,” said Ginni Rometty, IBM chairman, president and chief executive. “IBM will become the world’s number one hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.”

She continued that most companies today are only 20 per cent along their cloud journey, renting computer power to cut costs, with the next 80 per cent being about unlocking real business value and driving growth.

“This is the next chapter of the cloud, it requires shifting business applications to hybrid cloud, extracting more data and optimizing every part of the business, from supply chains to sales,” stated Rometty.

Jim Whitehurst, president and chief executive of Red Hat, said that joining forces with IBM will provide a greater level of scale, resources and capabilities to accelerate the impact of open source as the basis for digital transformation, “all while preserving our unique culture and unwavering commitment to open source innovation”.

IBM and Red Hat will now be “strongly positioned” to accelerate hybrid multi-cloud adoption, read the statement. They will help clients create cloud-native business applications faster, drive greater portability and security of data and applications across multiple public and private clouds.

The deal will also bring sharing of key technologies, such as [open-source operating system] Linux, containers, [open-source container-orchestration system] Kubernetes, multi-cloud management and automation.

IBM’s and Red Hat’s partnership has already spanned 20 years, collaborating to help develop and grow enterprise-grade Linux and more recently to bring enterprise Kubernetes and hybrid cloud solutions to customers. These innovations have become core technologies within IBM’s $19 billion hybrid cloud business.

IBM committed to Red Hat’s open governance, open-source contributions, participation in the open source community and development model.

IBM and Red Hat also will continue to build partnerships, including those with cloud providers such as Amazon Web Services, Microsoft Azure, Google Cloud, Alibaba and more, in addition to the IBM Cloud.