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IBM to acquire Red Hat for $34 billion

IBM
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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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