IBM Is Prepping To Buy Red Hat For RM142 Billion

IBM Is Prepping To Buy Red Hat For RM142 Billion

IBM Is Prepping To Buy Red Hat For RM142 Billion

IBM and Red Hat have reached an agreement under which IBM will acquire open source cloud software provider Red Hat for approximately $34 billion (£26.4 billion).

IBM's Rometty added that most companies are now being held back in their cloud transformation due to closed platforms. In 2000, IBM pledged that it would invest $1 billion in support of Linux and has been partners with Red Hat since at least 1998.

Rometty told Reuters on Sunday that the increasing use of cloud services from multiple providers was the driving force behind the deal along with the rise of the so-called hybrid cloud, in which companies run some of their software in their own data centers and other elements of it in data centers run by IBM, Amazon Web Services or Google Cloud, among others. That's a 63 per cent premium over Red Hat's closing price of US$116.68 per share on Friday.

"This is an acquisition for revenue growth, this is not for cost synergies", Rometty told Bloomberg, and said neither company will cut jobs following the deal. 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".

Analysts had raised concerns that the purchase may alienate customers worrying that IBM will infringe on the neutrality of Red Hat, which is dubbed as "Switzerland of the IT stack".

In a joint statement made by the two companies, "The acquisition of Red Hat is a game-changer".

The statement went on to claim that IBM had been an early and long-time supporter of Linux, collaborating with Red Hat to help it develop enterprise-grade Linux back in the early 2000s, "and more recently to bring enterprise Kubernetes and hybrid cloud solutions to customers".

"We will scale what Red Hat has deeply into many more enterprises than they're able to get to".

IBM's decision to acquire Red Hat for US$34 billion is a bold stroke, an admission of weakness and a mighty complication.

The biggest acquisition was the $67 billion merger between Dell and EMC in 2016 and JDS Uniphase's $41 billion acquisition of optical-component firm SDL in 2000.

This announcement is the largest software company acquisition to date.

In a blog post on Red Hat's site, executive vice president and president products and technologies Paul Cormier called the deal "a banner day for open source".

Six other companies could be snapped up as well, given their strong strategic positions, JPMorgan Chase software analyst Sterling Auty wrote in a note to clients on Monday.

For its fiscal 2018, ended February 28, Red Hat reported revenue of $2.92 billion, up 21 percent from fiscal 2017, and net income of $258.8 million for the year.

The deal comes just two weeks after IBM reported that its sales for its quarter ended September 30 came in at $18.8 billion, down two percent from year ago period, but flat when adjusted for currency fluctuations.

Both Red Hat and IBM said the combined company will accelerate "hybrid multi-cloud adoption". The companies expect to complete the acquisition sometime in the second half of 2019.

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