IBM acquires Red Hat for $34 billion

Jim Whitehurst in 2010
Jim Whitehurst in 2010

IBM and Red Hat announced that they have reached an agreement with which IBM will acquire all Red Hat’s shares, whose value closed last Friday at $116.68, for $190 per share paid in cash for a total value of about $34 billions. Red Hat will become part of IBM’s Hybrid Cloud division while its CEO Jim Whitehurst (photo ©Red Hat Magazine) will join IBM’s senior management reporting to CEO Ginni Rometty. This acquisition is oriented above all to make IBM a giant in the field of cloud services.

Red Hat is the largest company founded and developed in the field of the Linux operating system, which over the years has become dominant in all fields except the desktop and recently also in cloud solutions, in very strong growth. Also thanks to this growth, in fiscal year 2012 Red Hat became the first company in the field of free / open source software to surpass one billion dollars in revenue.

IBM lagged behind in the cloud field, ending up in a situation where it’s far behind competitors such as Amazon and Microsoft, which is showing a prevalence of Linux solutions in its cloud offerings. IBM started to invest in Linux around 2000 so there’s a long history of contributing to its development, but the interest was in particular on its mainframe systems though often collaborated with Red Hat but also with SUSE, another major company behind a historical Linux distribution. Acquiring Red Hat is a very strong move and not just for the amount offered.

Jim Whitehurst stated that open source is the default choice for modern IT solutions, showing his pride in the role that Red Hat had in making it a reality in the enterprise. He thinks that joining forces with IBM will provide more resources and capabilities to accelerate the impact of open source for digital transformation bringing open source to a larger number of users.

In his comments, Jim Whitehurst also emphasized his willingness to preserve Red Hat’s unique culture and unwavering commitment to open source innovation, a point that is seen as critical in IBM’s acquisitions. The company has a reputation for ruining everything it buys by modifying the way they work to make them the same as IBM, where there’s a corporate attitude with a priority towards making money.

Ginni Rometty stated that the acquisition will change things significantly in the cloud market, a confirmation that that’s the point of this move. The willingness is to become the first company in the world in the supply of hybrid cloud services with the confirmation that it’s a market that still has considerable growth margins, so much that in the official press release a market worth one trillion dollars is mentioned.

Among the statements in the press release there’s also the one concerning IBM’s commitment to keep everything that made Red Hat’s success in the open source world. IBM’s experience in the Linux field offers some hope about it but there are various concerns. The Fedora Project develops a distribution sponsored by Red Hat closely linked to Red Hat Enterprise Linux (RHEL), will anything change? There are a number “clones” of Red Hat Enterprise Linux that keep its free / open source parts including the CentOS project, which since 2014 has become an official part of the Red Hat family, what will happen to it?

The deal must go through the formalities that accompany these acquisitions and should be completed in the second half of 2019. At that point, IBM will own an important enterprise Linux distribution and a range of business solutions for the cloud, including those based on containers and services for containers such as Kubernetes. IBM really has the chance to become a huge service provider in a fast growing field, if it manages them properly it will become a very strong competitor.

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