IBM buys open source biz Red Hat in £26.5bn mega

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USA tech giant IBM has agreed to a deal with Red Hat, an open source cloud software provider, to purchase it for $34 billion, making the 107-year-old United States firm the world's biggest hybrid cloud provider. The two companies called the acquisition a logical step after they've worked together for 20 years, saying IBM served as an early supporter of Linux, a key component of Red Hat's software distribution system.

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. "It changes everything about the cloud market", said IBM CEO Ginni Rometty in a statement issued on Sunday evening.

Arvind Krishna, senior vice president of IBM's Hybrid Cloud division, the unit that will house Red Hat, tells Barron's the market potential for that 80% is $1 trillion.

The Red Hat purchase will give IBM an immediate cloud revenue boost growth as well as a suite of proven software products to sell through its global sales force. Between them, IBM and Red Hat have contributed more to the open source community than any other organisation. Red Hat, on the other hand, could not monetise its own product suite effectively, and annual revenue remained around $3 billion. IBM also maintains its commitment to a "solid and growing dividend", a disciplined financial policy and maintaining its investment grade credit rating. The oldest company in technology believes that Red Hat can help its customers, many of which are still running the bulk of their their IT infrastructure in the old-fashioned way, address the modern era of multicloud and hybrid computing driven by Linux and containers. I'm sure I am not alone is fearing that IBM could ultimately ruin Red Hat and its offerings.

At the same time, Red Hat will aim to leverage IBM's hybrid cloud and enterprise IT scale in helping expand open source technology offerings to businesses globally. Since the day we chose to bring open source to the enterprise, our mission has remained unchanged. The global public cloud services market is projected to grow 21.4 percent in 2018 to $186.4 billion, up from $153.5 billion in 2017, according to Gartner Inc. This is the next chapter of the cloud.

Rometty also pledged to continue to "build and enhance" Red Hat partnerships, including those with major cloud providers, such as Amazon Web Services (AWS), Microsoft Azure, Google Cloud and Alibaba, in addition to the IBM Cloud.

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"Red Hat was previously able to position itself as the Switzerland for on-premises computing", Mueller said.

Rometty said IBM "paid a very fair price".

"We expect investor skepticism around the deal given IBM's messaging that it is well underway in its transformation", he said.

Although the deal was approved by both companies' boards, it's not expected to close until well into next year.

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

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