Published: Mon, October 29, 2018
Markets | By Jeffery Armstrong

IBM buys Linux giant Red Hat to thrive in the cloud

IBM buys Linux giant Red Hat to thrive in the cloud

IBM will pay $US190 per share for the software company, which it described as the world's leading provider of open source cloud software, a more than 60% premium to Red Hat's closing stock price of $US116.68 on Friday. In other words, an open cloud provider improved by Red Hat's decades of knowledge in Linux and open source. "It changes everything about the cloud market", Ginni Rometty, IBM's chairman, president and chief executive officer, said in a prepared statement.

"Most companies today are only 20 per cent along their cloud journey, renting compute power to cut costs", she said.

"Today is a banner day for open source", said Paul Cormier, Red Hat's vice president and president of products and technologies.

And yes, both companies are aware of the impact this will have on Linux and open source at large.

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The company will be paying through cash and debt, as opposed to share exchange, but did not specify the proportions. The company has been seeing declining revenue for around 5 years as it struggles to gain ground on Microsoft and Amazon, only seeing some growth in the last few quarters, largely due to its legacy mainframe business. "Imagine Red Hat with greater resources to grow into the opportunity ahead of us", Whitehurst told employees in an email Sunday afternoon.

Yes, plenty of the VMs running under vSphere on the IBM cloud will use Red Hat, and lots of IT titans offer overlapping and/or competing products.

However, Red Hat has seen increasing adoption of its container management software, which works with Docker and Kubernetes to help companies manage hybrid applications deployed across their own data centers and public clouds.

With this acquisition, Rometty said IBM will "remain committed" to Red Hat's open governance, open source contributions, participation in the open source community and development model, while also "fostering" its widespread developer ecosystem. While it might be all good on the business side of things, such acquisitions do make open source advocates worry, especially users of the Fedora Linux distribution that's based on and supported by Red Hat.

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"IBM is committed to being an authentic multi-cloud provider, and we will prioritize the use of Red Hat technology across multiple clouds" said Arvind Krishna, Senior Vice President, IBM Hybrid Cloud.

The deal is a "real winner" for the two companies, who are longtime strategic partners, says Charles King, principal analyst at Pund-IT. "IBM intends to maintain Red Hat's headquarters, facilities, brands and practices". IBM shares have lost nearly a third of their value in the past five years, while Red Hat shares are up 170 percent over the same period.

For all that, maintaining Red Hat's standing and culture could prove hard for the company once known as Big Blue. But it is expected to close by the second half of 2019.

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