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IBM Acquires Red Hat for $34 Billion to Embark on Open Hybrid Cloud Future

By Ken Briodagh
July 10, 2019

IBM and Red Hat have closed the transaction under which IBM acquired all of the issued and outstanding common shares of Red Hat for $190.00 per share in cash, representing a total equity value of approximately $34 billion, according to a recent release.

Red Hat's open hybrid cloud technologies are now paired with the scale and depth of IBM's innovation and industry expertise, and sales leadership in more than 175 countries. Together, IBM and Red Hat reportedly will offer a next-generation hybrid multicloud platform based on open source technologies, such as Linux and Kubernetes, designed to allow businesses to securely deploy, run and manage data and applications on-premises and on private and multiple public clouds.

“Businesses are starting the next chapter of their digital reinventions, modernizing infrastructure and moving mission-critical workloads across private clouds and multiple clouds from multiple vendors,” said Ginni Rometty, chairman, president and CEO, IBM. “They need open, flexible technology to manage these hybrid multicloud environments. And they need partners they can trust to manage and secure these systems. IBM and Red Hat are uniquely suited to meet these needs. As the leading hybrid cloud provider, we will help clients forge the technology foundations of their business for decades to come.”

“When we talk to customers, their challenges are clear: They need to move faster and differentiate through technology. They want to build more collaborative cultures, and they need solutions that give them the flexibility to build and deploy any app or workload, anywhere," said Jim Whitehurst, president and CEO, Red Hat. “We think open source has become the de facto standard in technology because it enables these solutions. Joining forces with IBM gives Red Hat the opportunity to bring more open source innovation to an even broader range of organizations and will enable us to scale to meet the need for hybrid cloud solutions that deliver true choice and agility.”

Red Hat will continue to be led by Jim Whitehurst and its current management team. Whitehurst is joining IBM's senior management team, reporting to Ginni Rometty. IBM will maintain Red Hat's headquarters in Raleigh, North Carolina, its facilities, brands and practices. Red Hat will operate as a distinct unit within IBM and will be reported as part of IBM's Cloud and Cognitive Software segment.

"As organizations seek to increase their pace of innovation to stay competitive, they are looking to open source and a distributed cloud environment to enable a new wave of digital innovation that wasn't possible before. Over the next five years, IDC expects enterprises to invest heavily in their journeys to the cloud, and innovation on it. A large and increasing portion of this investment will be on open hybrid and multicloud environments that enable them to move apps, data and workloads across different environments," said Frank Gens, SVP and Chief Analyst, IDC. "With the acquisition of Red Hat, and IBM's commitment to Red Hat's independence, IBM is well positioned to help enterprises differentiate themselves in their industry by capitalizing on open source in this emerging hybrid and multicloud world."

According to the announcement, the collective ability of IBM and Red Hat to unlock the value of hybrid cloud for businesses is already resonating among customers moving to the next chapter of digital reinvention.

“Delta is constantly exploring current and emerging technology as we transform the air travel experience," said Ed Bastian, CEO, Delta. "We've been working with both IBM and Red Hat for years to deliver on that goal, and as they together build the next generation IT company, they will be an essential part of our digital transformation."

IBM and Red Hat have deep open source values and experience. The two companies have worked together for more than 20 years to make open source the default choice for modern IT solutions. This includes the importance of open governance and helping open source projects and communities flourish through continued contribution.

Red Hat's mission and unwavering commitment to open source will remain unchanged, and Red Hat will continue to offer the choice and flexibility inherent to open source and hybrid IT environments.

IBM and Red Hat also share a strong commitment to social responsibility and a sense of purpose for applying technology and expertise to help address some of the world's most significant societal challenges. Together, the two companies have committed to expanding this longstanding commitment through new joint initiatives, addressing education and skills, civic and societal needs and Science, Technology, Engineering, and Math (STEM) workforce development.

IBM's cloud revenue has grown from 4 percent of total revenue in 2013 to 25 percent today. IBM cloud revenue for the 12-month period through the first quarter of this year grew to over $19 billion. The Red Hat acquisition is expected to contribute approximately two points of compound annual revenue growth to IBM over a five-year period.

Red Hat's fiscal year 2019 revenue was $3.4 billion, up 15 percent year-over-year. Fiscal first quarter 2020 revenue, reported in June, was $934 million, up 15 percent year-over-year. In that quarter, subscription revenue was up 15 percent year-over-year, including revenue from application development-related and other emerging technology offerings up 24 percent year-over-year. Services revenue also grew 17 percent.




Edited by Ken Briodagh

Editorial Director

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