IBM has announced that it is buying open-source cloud software company Red Hat for $34 billion. As part of the agreement, IBM is spending $190 per issued and outstanding share of Red Hat — which is a 60% premium of Red Hat’s closing stock price of $116.68 on Friday.
“The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,” said IBM President, Chairman, and CEO Ginni Rometty. “IBM will become the world’s #1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.”
Many companies are currently using multiple clouds, but research shows that 80% of business workloads have not been moved to the cloud yet. This is due to the proprietary nature of the cloud market. And that prevents portability of data and applications across multiple clouds and data security in a multi-cloud environment. Together IBM and Red Hat are planning to address this issue by accelerating hybrid multi-cloud adoption.
“Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs,” added Rometty. “The next 80 percent 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 optimizing every part of the business, from supply chains to sales.”
IBM and Red Hat will also help clients create cloud-native business applications faster and drive greater portability and security of data and applications across multiple private and public clouds with consistent cloud management. They will also draw on shared leadership in key technologies such as Linux, Kubernetes, containers, multi-cloud management, and automation.
“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,” Red Hat CEO and President Jim Whitehurst commented. “Joining forces with IBM will provide us with a greater level of scale, resources and capabilities to accelerate the impact of open source as the basis for digital transformation and bring Red Hat to an even wider audience – all while preserving our unique culture and unwavering commitment to open source innovation.”
IBM and Red Hat have been partners for 20 years. And IBM has been an early supporter of Linux by collaborating with Red Hat to develop and build on enterprise-grade Linux. More recently, IBM worked with Red Hat to bring enterprise Kubernetes and hybrid cloud solutions to its customers. And those innovations have become a core part of IBM’s 419 billion hybrid cloud business.
After the acquisition is closed, Red Hat will join IBM’s Hybrid Cloud team as a distinct unit. Red Hat will continue being led by Whitehurst and the current management team. And Whitehurst will become part of IBM’s senior management team reporting to Rometty. IBM is planning to maintain Red Hat’s brands, practices, facilities, and headquarters.
IBM is planning to remain committed to Red Hat’s open governance, open source contributions, development model, and participation in the open source community. IBM and Red hat will also continue to be committed to the freedom of open source through efforts like Patent Promise, GPL Cooperation Commitment, the Open Invention Network, and the LOT Network.
Plus the combined companies will build and enhance Red Hat’s partnerships, including the ones with major cloud providers like Amazon Web Services, Microsoft Azure, Google Cloud, Alibaba, and IBM Cloud. And Red Hat will benefit from IBM’s hybrid cloud and enterprise IT scale in helping expand their open source technology portfolio to businesses globally.
JPMorgan provided IBM most of the financing and advised the company on the deal and Lazard also served as an advisor for the deal. And Guggenheim Partners represented Red Hat.