IBM to acquire Red Hat for US$34 billion

IBM to acquire Red Hat in $34 billion deal Red Hat to remain ‘distinct unit

IBM has launched a rearguard action to wrest cloud computing dominance from Amazon, after agreeing to purchase open source software firm Red Hat in a $34bn deal - its largest ever and the third biggest technology deal on record.

Guggenheim Partners LLC and Morgan Stanley were financial advisers to Red Hat, while Skadden, Arps, Slate, Meagher & Flom LLP offered legal advice to the company on the deal.

The acquisition has been approved by the board of directors at both companies, but it must still be approved by Red Hat shareholders and is subject to regulatory approvals and other closing conditions. "It changes everything about the cloud market", said IBM CEO Ginni Rometty.

The Raleigh, North Carolina based company is today present in 35 countries and employs some 12,000 people, and is one of the best-known open-source players whose customers pay for tailor-made solutions. This is the next chapter of the Cloud. Red Hat's stock had closed at $116.68 a share Friday, down from a peak in June of about $175.

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". Its 2013 acquisition of Softlayer gave the company a public cloud toehold, but all the growth in public cloud computing is coming from the big three US providers, including the above-mentioned companies and Google Cloud.

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The deal is the result of a 20 year partnership, as IBM has long helped Red Hat develop and bring cloud solutions to customers.

He went on to explain that, while he will report directly to Rometty, Red Hat will continue to operate as a "distinct unit", whatever that means.

IBM also emphasized that it would remain committed to Red Hat's open governance policy. That signals the value it places on the company, which could add instant credibility to the computer and services giant's multiyear efforts to make its platform for cloud applications more appealing to developers.

Red Hat's flagship product, Red Hat Enterprise Linux, was the operating system of choice for private data center operators over the last decade or so, firmly establishing Linux as a viable alternative to Microsoft Windows Server and commercial Unix operating systems among those operating their own data centers. "It requires shifting business applications to hybrid cloud, extracting more data and optimising every part of the business, from supply chains to sales". Or CentOS which takes Red Hat and debrands it.

"IBM and Red Hat - the world's leading provider of open source cloud software - announced today that the companies have reached a definitive agreement under which IBM will acquire all of the issued and outstanding common shares of Red Hat for $190.00 per share in cash, representing a total enterprise value of approximately $34 billion", the statement reads.

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