IBM Closes US $ 34 Billion Contracts for the Red Hat Purchase

REUTERS: International Business Machines Corp. announced on Tuesday (July 9th) the closing of its $ 34 billion acquisition of the $ 34 billion software company Red Hat Inc., to bolster its cloud computing business.

In October, IBM decided to buy Red Hat, the largest acquisition of the company for over 100 years.

Ginni Rometty, executive director of IBM since 2012, has steered the company toward faster-growing segments, such as cloud, software and services, and away from traditional hardware products, but not without bumpy road. New areas of intervention have sometimes overwhelmed investors.

The company, which got approval from European regulators in late June and US regulators in May, agreed to pay $ 190 per share for Red Hat, which represents a 63% premium.

Founded in 1993, Red Hat specializes in Linux operating systems, the most widely used open source software and an alternative to proprietary software developed by Microsoft Corp. IBM has seen years of declining revenue, moving from traditional hardware business to new technology products and services.

Jim Whitehurst, CEO of Red Hat, and his management team will remain in place. Whitehurst will join IBM's senior management and report to Rometty.

IBM will maintain Red Hat's headquarters in Raleigh, North Carolina, its facilities, brands and practices, and will indicate that it operates as a separate unit within IBM.

The two companies announced that IBM and Red Hat would offer "a hybrid hybrid multilayer platform of new generation" that "will be based on open source technologies, such as Linux and Kubernetes".

IBM's cloud strategy has been to help organizations combine multiple cloud platforms rather than compete with "large-scale" cloud providers such as Amazon Web Services, an Amazon.com unit. Inc., Microsoft and Google of Alphabet Inc.

According to IBM, Red Hat will continue to "build and expand its partnerships, including with major cloud providers such as Amazon Web Services, Microsoft Azure, Google Cloud and Alibaba."

Since 2013, IBM's cloud revenue as a percentage of total revenue has increased sixfold to 25%. In the last 12 months of the first quarter of 2019, cloud revenues exceeded 19 billion US dollars.

Red Hat is expected to contribute about two points of annual growth in its annual revenue over a five-year period, IBM said.