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IBM buys Red Hat for Rs.34 bn in mega deal

The acquisition of Red Hat is a game-changer. It changes everything about the cloud market. IBM will become the world’s top hybrid cloud provider.

IBM buys Red Hat for Rs.34 bn in mega deal
James M Whitehurst, CEO, Red Hat with Ginni Rometty, Chairman, President, and CEO of IBM (right)

San Francisco

In a strong signal to dominate the emerging $1 trillion Hybrid Cloud market, tech major IBM has announced to acquire Open Source Solutions leader and Linux Operating System owner Red Hat for a massive $34 bn.

The acquisition, IBM’s biggest so far, will provide an open approach to Cloud, featuring unprecedented security and portability across multiple clouds, a joint statement said. The deal, once it goes through, will make IBM the top Hybrid Cloud provider in an emerging $1 trillion growth market. “The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,” said Ginni Rometty, IBM Chairman, President and CEO.

“IBM will become the world’s top hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses,” she added. Red Hat will operate as a distinct unit within IBM’s Hybrid Cloud team. IBM will acquire all of the issued and outstanding common shares of Red Hat for $190 per share in cash, representing a total enterprise value of approximately $34 bn.

According to Dave Bartoletti, VP and Principal Analyst at Forrester, IBM embraced Linux and open source software earlier than many tech titans of the last era.

“Red Hat has built the most successful company ever focused solely on Linux and open source middleware. While IBM has struggled to keep up with Amazon Web Services, Microsoft and Google in the public cloud market, this deal gives IBM a new stronghold in the cloud development platforms market,” Bartoletti said.

Most companies today are only 20 per cent along their cloud journey, renting compute power to cut costs. “The next 80 per cent is 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 optimising every part of the business, from supply chains to sales,” informed Rometty.

IBM and Red Hat will be positioned to accelerate Hybrid multi-cloud adoption. “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.

IBM’s and Red Hat’s partnership has spanned 20 years, with IBM serving as an early supporter of Linux, collaborating with Red Hat 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 bn Hybrid Cloud business. IBM and Red Hat will continue to build and enhance Red Hat 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.

“IBM is committed to being an authentic multi-cloud provider, and we will prioritise the use of Red Hat technology across multiple clouds” said Arvind Krishna, Senior VP, IBM Hybrid Cloud. The Red Hat acquisition by IBM is the third-biggest in the history of US technology.

The biggest acquisition was the $67 bn merger between Dell and EMC in 2016 and JDS Uniphase’s $41 bn acquisition of optical-component firm SDL in 2000. Last week, Microsoft closed a $7.5 bn acquisition of the code hosting and collaboration company GitHub.

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