IBM goes further in the cloud with a $ 35 billion deal for Red Hat

IBM Corp. announced Sunday it has agreed to acquire the US software company Red Hat Inc. for $ 34 billion, including debt, in order to diversify its hardware and consulting business in products and services with higher margin .

The transaction is by far the largest acquisition of IBM. He highlights the efforts of IBM CEO Ginni Rometty to expand the company's subscription-based software offering, as software sales slow and demand for mainframe servers slows.

"The acquisition of Red Hat makes a difference … IBM will become the world's # 1 hybrid cloud provider, offering businesses the only open cloud solution to fully leverage the cloud for their business," said Ms. Rometty. said in a statement.

IBM, whose market capitalization is $ 114 billion, will pay $ 190 per share cash to Red Hat, a premium of 62% over Friday's closing share price.

Founded in 1993, Red Hat specializes in Linux operating systems, the most common type of open source software, which was developed to replace the proprietary software developed by Microsoft Corp.

Headquartered in Raleigh, USA, Red Hat charges its corporate customers for customization, maintenance, and technical support, providing IBM with a lucrative source of subscription revenue.

In an interview with Reuters, Ms. Rometty, CEO of IBM since 2012, says Red Hat is one of the few companies in the cloud computing industry to show both revenue and cash flow growth available.

"This acquisition is clearly linked to growth synergies. It is not at all cost synergies, "said Ms Rometty during the interview.

The acquisition illustrates how older technology companies are turning to transactions to gain scale and compete, especially in cloud computing, where customers using enterprise software are looking to save money. by strengthening their relationships with their suppliers.

IBM hopes this agreement will help it catch up with Amazon.com Inc., Alphabet Inc. and Microsoft Corporation in the rapidly growing cloud sector. IBM shares have lost nearly a third of their value over the past five years, while Red Hat shares have increased 170% over the same period.

IBM was founded in 1911 and is known in the technology industry as Big Blue, a reference to its once-ubiquitous blue computers. It had to cope with a decline in sales over the years, as its traditional computer manufacturer business resulted in new technology products and services. Recent initiatives include artificial intelligence and business areas around Watson, named after the supercomputer it has developed.

Of course, IBM is no stranger to acquisitions. It acquired Softlayer cloud infrastructure provider in 2013 for $ 2 billion and Weather Channel's data badets for more than $ 2 billion US in 2015. It also acquired the Canadian enterprise software manufacturer, Cognos, in 2008, for 5 billion US dollars.

Other major technology companies have recently sought to reinvent themselves through acquisitions. Microsoft has this year acquired the open source software platform Github for 7.5 billion US dollars; Broadcom chip maker Inc. has agreed to acquire CA software maker Inc. for nearly US $ 19 billion; and Adobe Inc. have agreed to acquire marketing software maker Marketo for US $ 5 billion.

Dell Technologies Inc., a major IBM competitor, bet on software and cloud computing two years ago, acquiring the $ 67 billion EMC data storage company dollars. As part of this agreement, Dell inherited an 82% stake in VMware Inc.'s virtualization software company.

The agreement between IBM and Red Hat is expected to be concluded in the second half of 2019. IBM has announced plans to suspend its share buyback program in 2020 and 2021 to help pay for this. agreement.

According to IBM, Red Hat will continue to be led by Red Hat General Manager Jim Whitehurst and the current Red Hat management team. He intends to maintain the headquarters, facilities, brands and practices of Red Hat.

Goldman Sachs Group Inc. and JPMorgan Chase & Co. advised IBM and provided financing for the transaction. Guggenheim Partners LLC advised Red Hat.

"Recognizing the importance of open and hybrid cloud technologies to help companies unlock value, we are seeing the potential for bringing these two companies together and are honored to be advising IBM and committing funds for this transaction," he said. said Jamie Dimon, CEO of JPMorgan a statement.