IBM Is Prepping To Buy Red Hat For RM142 Billion

IBM Is Prepping To Buy Red Hat For RM142 Billion

Companies like Facebook and Amazon have dabbled with Red Hat's open source knowledge before they went on to become a multi-million-dollar business.

IBM notes that it has ample cash, credit and bridge lines with which to finance the acquisition and that it intends to finance the deal through a mix of cash and debt.

"The acquisition of Red Hat is a game-changer", IBM CEO Ginni Rometty said in a press release.

IBM and Red Hat have partnered on enterprise-grade Linux for over 20 years.

IBM is buying cloud computing company Red Hat for $34 billion, its biggest acquisition ever, the company announced on Sunday.

Under the terms of the deal announced Sunday, IBM will acquire Red Hat for $190 a share - a premium of more than 60 percent over Red Hat's closing price of $116.68 on Friday.

IBM and Red Hat have maintained an alliance for some 20 years under which a number of Red Hat products, including Linux and Kubernetes, are part of IBM's $19 billion hybrid cloud software and services business.

The purchase illustrates how older technology companies are turning to dealmaking to gain scale and fend off competition.

"Today's announcement is the evolution of our long-standing partnership", Rometty said.

The deal was first reported by Bloomberg, which said that Red Hat has a market valuation of $20.5 billion but that its shares are down almost 3 percent this year. "The next 80 per cent is about unlocking real business value and driving growth".

At the same time, sales last quarter overall missed analysts' expectations and the forecast for the current quarter also fell short, fuelling concerns Red Hat may be losing deals to rivals and growth may be slowing. "This is the next chapter of the cloud". IBM said it planned to suspend its share repurchase program in 2020 and 2021 to help pay for the deal.

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. The two companies said the deal is subject to Red Hat shareholder and regulatory approval and should be completed in the latter half of 2019.

Red Hat will operate as a distinct unit within IBM's Hybrid Cloud team. Red Hat will still be helmed by Jim Whitehurst and Red Hat's current management team.

"IBM's commitment to keeping the things that have made Red Hat successful - always thinking about the customer and the open source community first - make this a tremendous opportunity for not only Red Hat but also open source more broadly", added Paul Cormier, president of products and technologies at Red Hat.

The price makes it the largest software acquisition in history.

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