Armonk, New York-based IBM announced Sunday plans to acquire Raleigh, N.C.-based Red Hat, a provider of open source cloud software, for approximately $34 billion.
The acquisition is by far IBM's largest deal ever, and the third-biggest in the history of U.S. tech. As a result of the deal, IBM one of the largest hybrid cloud providers in an emerging $1 trillion growth market.
Under the agreement, IBM will buy all of the issued and common shares of Red Hat for $190 in cash. Shares in Red Hat closed at $116.68 on Friday before the deal was announced. The deal is expected to close in the latter half of 2019.
Red Hat to operate as a distinct unit within IBM's Hybrid Cloud team.
“The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,” Ginni Rometty, IBM chairman, president and CEO, said in a statement. “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.
Rometty noted that most companies today are only 20 percent along their cloud journey, renting compute power to cut costs. "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," she said.
"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," Jim Whitehurst, president and CEO, Red Hat, said in a statement. "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."
Companies today are already using multiple clouds. However, research shows that 80 percent of business workloads have yet to move to the cloud, held back by the proprietary nature of today's cloud market. This prevents portability of data and applications across multiple clouds, data security in a multi-cloud environment and consistent cloud management, the organizations said.
With the acquisition, IBM plans to accelerate hybrid multi-cloud adoption. “Together, they will help clients create cloud-native business applications faster, drive greater portability and security of data and applications across multiple public and private clouds, all with consistent cloud management. In doing so, they will draw on their shared leadership in key technologies, such as Linux, containers, Kubernetes, multi-cloud management, and cloud management and automation,” the companies said in a press release.
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 billion hybrid cloud business. Between them, IBM and Red Hat have contributed more to the open source community than any other organization.
With the acquisition, IBM said it would remain committed to Red Hat's open governance, open source contributions, participation in the open source community and development model, and fostering its widespread developer ecosystem. In addition, IBM and Red Hat will remain committed to the continued freedom of open source, via such efforts as Patent Promise, GPL Cooperation Commitment, the Open Invention Network and the LOT Network.
IBM and Red Hat also 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. At the same time, Red Hat will benefit from IBM's hybrid cloud and enterprise IT scale in helping expand their open source technology portfolio to businesses globally, the companies said.
Upon closing of the acquisition, Red Hat will join IBM's Hybrid Cloud team as a distinct unit. Red Hat will continue to be led by Jim Whitehurst and Red Hat's current management team. Jim Whitehurst also will join IBM's senior management team and report to Rometty.