Oct 28, 2018

IBM to acquire Red Hat for $34 billion

Photo: Alvin Chan/SOPA Images/LightRocket via Getty Images

IBM announced Sunday it would acquire Linux specialist Red Hat in a deal valued at $34 billion in cash and debt. That works out to $190 per share, a hefty premium to where the software maker has been trading, and the largest software acquisition of all-time.

Our thought bubble, via Axios' Kim Hart: IBM has been shifting for years away from mainframes and servers to selling software and services that bring recurring revenue. Red Hat, which charges corporate clients for custom-built Linux offerings, fits into that strategy.

The move comes as others are also doubling down on Linux, including longtime rival Microsoft which just completed its $7.5 billion GitHub purchase and recently joined an effort that helps protect open source by sharing patent rights.

The details:

The deal is expected to close in the second half of 2019
Red Hat will become a standalone unit in IBM's cloud unit and keep its existing leaders and location.
IBM said it should add to free cash flow and profit margins within 12 months

What they're saying:

N.Y. Times tech reporter Steve Lohr: "IBM makes a big move to attract software developers and position itself as the "Switzerland" of the cloud world."
Tech journalist Simon Le Gros Bisson: "The only upside I can see to an IBM/RHAT deal is if IBM lets Red Hat run it like a reverse takeover. Otherwise it's going to be "How many Global Services consultants do you want with that OpenShift install?""
Red Hat engineer Dan Sneddon: "I’m having trouble picking my jaw up off the floor. This probably won’t be a bad thing in the long run, but calling this a surprise is an understatement."

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