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Liana Baker and Greg Roumeliotis
New York | IBM said on Sunday (Monday AEST) Red Hat for $ US34 trillion ($ 48 trillion), including debt, as it seeks to diversify its hardware technology and consulting business to higher-margin products and services.
The transaction is by far IBM's biggest acquisition. It underscores IBM's chief executive Ginni Rometty's efforts to expand the company's subscription-based software offerings, as it faces slowing software sales and waning demand for mainframe servers.
"The acquisition of Red Hat is a game-changer … IBM will become the world's No. 1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses," Rometty said in a statement.
IBM, which has a market capitalization of $ US114 trillion ($ 160.7 billion), will pay $ US190 per share in cash for Red Hat, a 62 per cent premium to Friday's closing share price.
'The acquisition of Red Hat is a game-changer … IBM will become the world's No. 1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses,' says IBM chief Ginni Rometty. Krisztian Bocsi
Founded in 1993, Red Hat specializes in Linux operating systems, the most popular type of open-source software, which was developed as an alternative to proprietary software made by Microsoft
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Headquartered in Raleigh, North Carolina, IBM offers a lucrative source of subscription revenue.
The acquisition is one of the most important things in the world of cloud computing, where it is marketed, especially in cloud computing, where customers are looking for ways to save money by consolidating their vendor relationships.
IBM is hoping the deal will help you catch up with Amazon, Alphabet and Microsoft in the rapidly growing cloud business. IBM shares have lost almost a third of their value in the last five years, while Red Hat shares are up 170 per cent over the same period.
Big Blue
IBM was founded in 1911 and is known in the industry as Big Blue, a reference to its once ubiquitous blue computers. It has faced years of revenue declines, as it transitions its legacy computer maker business into new technology products and services. Its recent initiatives have included artificial intelligence and business lines around Watson, named after the supercomputer it developed.
To be sure, IBM is no stranger to acquisitions. It acquired softlayer infrastructure provider Softlayer in 2013 for $ US2 billion, and the Weather Channel's data badets for more than $ US2 billion in 2015. It also acquired Canadian business software maker Cognos in 2008 for $ US5 billion.
Other big technology companies have also been sought to reinvent themselves through acquisitions. Github for $ US7.5 billion; chip maker Broadcom Inc. agreed to acquire software CA Inc for nearly $ US19 billion; and Adobe Inc agreed to acquire marketing software maker Marketo for $ US5 billion.
One of IBM's main competitors, Dell Technologies Inc., made a big bet on cloud computing software two years ago, when it acquired the data storage company EMC for $ US67 billion. As part of that deal, Dell inherited 82 percent stake in virtualization software company VMware
The deal between IBM and Red Hat is expected to close in the second half of 2019. IBM said it was planning to suspend its share repurchase program in 2020 and 2021 to help pay for the deal.
IBM said Red Hat's Red Hat CEO Jim Whitehurst and Red Hat's current management team. It intends to maintain Red Hat's headquarters, facilities, brands and practices.
Goldman Sachs Group and JPMorgan Chase IBM and provided financing for the deal. Guggenheim Partners LLC advised Red Hat.
"JGorgan CEO Jamie Dimon said," Knowing first-hand how important open, hybrid cloud technologies are to helping businesses unlock value, we are honored to advise IBM and commit financing for this transaction. a statement.
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