IBM said Sunday that it is buying Red Hat, a provider of open source cloud software. The companies said they have reached a definitive agreement under which IBM will acquire all of the issued and outstanding common shares of Red Hat for $190 per share in cash, representing a total enterprise value of approximately $34 billion. IBM said that the deal will make IBM the #1 hybrid cloud provider in an emerging $1 trillion growth market.
The acquisition has been approved by the boards of directors of both IBM and Red Hat. It is subject to Red Hat shareholder approval. It also is subject to regulatory approvals and other customary closing conditions. It is expected to close in the latter half of 2019.
"The acquisition of Red Hat is a game-changer. It changes everything about the cloud market," said Ginni Rometty, IBM chairman, president and CEO. "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.
According to Rommetty, most companies today are only 20% along their cloud journey, renting compute power to cut costs. The problem is that the proprietary nature of today's cloud market prevents portability of data and applications across multiple clouds, data security in a multi-cloud environment and consistent cloud management, according to IBM.
"The next 80% 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,” said Rommetty.
Together, IBM said the companies 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.
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.
Industry watchers noted that with this acquisition, IBM will begin providing technology to its many of its significant competitors, such as Amazon Web Services, Microsoft Azure, and Google. Red Hat partners with all of them, and IBM said it will continue the partnerships after the acquisition and work to expand on them. At the same time, IBM said, Red Hat will benefit from IBM's hybrid cloud and enterprise IT scale in helping expand their open source technology portfolio to businesses globally.
IBM emphasized that it will 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, the company added.
Upon closing of the acquisition, Red Hat will join IBM's Hybrid Cloud team as a distinct unit, preserving the independence and neutrality of Red Hat's open source development heritage and commitment, current product portfolio and go-to-market strategy, and unique development culture. Red Hat will continue to be led by Jim Whitehurst, president and CEO, Red Hat, and Red Hat's current management team. Whitehurst also will join IBM's senior management team and report to Ginni Rometty. IBM said it intendes to continue to maintain Red Hat's headquarters, facilities, brands, and practices.