IBM will acquire Red Hat for about 33 billion dollars

"It's a point of inflection," said Ms Rometty.

Red Hat will help IBM in this effort as it is a leading provider of open source software and services designed to help businesses bridge the gap between different platforms. she said.

The deal comes nearly seven years after the start of Mrs Rometty's struggle to reorganize this 107-year-old company by narrowing the older, slower-growing industries and focusing heavily on advanced technologies such as than artificial intelligence and cloud computing. This effort resulted in a nearly six-year fall in revenues, which IBM ultimately reversed in January with three consecutive quarters of growth.

However, in the last quarter, IBM revenue fell 2.1%, despite the burgeoning market for technology purchases by businesses. The share price of IBM is down 19% from last year. For this year, analysts expect that IBM will record a business turnover of $ 79.75 billion and adjusted earnings of $ 13.80 per share, according to S & P Global Market Intelligence. In 2011, the year before Ms. Rometty's appointment as Chief Executive Officer, IBM achieved revenue of $ 106.92 billion and adjusted earnings of $ 13.44 per share.

IBM plans to pay $ 190 per share to Red Hat as part of IBM's largest acquisition to date. IBM plans to use cash and debt to complete the acquisition. At the end of the third quarter, he held $ 14.7 billion in cash.

Turning stalls

IBM fell back on quarterly earnings after a brief run of gains.

Change in business turnover compared with the previous year

IBM is paying an unusually high premium in this transaction, 63% higher than Red Hat's closing stock price of $ 116.68 on Friday. IBM said the deal, including debt, was $ 34 billion. Using the latest issue of Red Hat for outstanding shares, the equity value of the transaction is just below that.

Founded 25 years ago, Red Hat has become the leading provider of enterprise Linux operating systems. While Linux is available for free, Red Hat sells a version of Linux that contains software enhancements and the high level of technical support that companies need. The company achieved a turnover of $ 2.9 billion for its last fiscal year ending in February 2018.

"IBM has deep and deep customer expertise … in a way that can dramatically accelerate our business," said Red Hat CEO Jim Whitehurst in an interview.

For IBM, Red Hat Linux and other software assets represent an opportunity to sell products to enterprise software developers who build complex applications that can run on cloud computing platforms such as Amazon and Microsoft, as well as internal data centers.

"I think it's a very good strategic choice for IBM," said Crawford Del Prete, COO of International Data Corp., an industrial research firm. "Red Hat has done a fantastic job over the last few years and has become relevant to developers and developers. help developers not only with Linux, but also with Linux tools. "

Red Hat, based in Raleigh, NC, will operate as a separate unit within IBM's Hybrid Cloud team. And IBM intends to retain the approximately 12,600 Red Hat employees, said Ms Rometty. IBM currently employs just under 370,000 people.

Cloud Companies

IBM was fifth in the world in terms of public cloud infrastructure service in 2017.

As companies move their IT resources to the cloud, they choose multiple cloud providers, like Amazon and Microsoft for cloud infrastructure, for example.

Salesforce.com
Inc.

and

Working day

Inc. for applications. Rometty is betting that Red Hat will help IBM offer software and services to help companies integrate these technologies with applications running in their own data centers.

"They can already see what I would call the spread of clouds and they must have a way to handle it," said Ms Rometty.

Open Source software is essential because it makes it easier for customers to move IT between different cloud providers and from their own data centers.

The challenge for IBM is that rivals have made progress in the sector. According to the market research firm, IBM accounted for 1.9% of revenue in 2017 in the global cloud computing infrastructure market.

Gartner
Inc.

The market leader, Amazon, took 51.8% of the market. IBM also dragged Microsoft,

Alibaba Group Holding
Ltd.

and

Alphabet
Inc.

Google.

Red Hat provides IBM with its flagship operating system, Red Hat Enterprise Linux. The software company has focused its resources on a new product called OpenShift, which allows enterprise software developers to create programs running on specialized software, called containers, which can in turn be run in computer centers. business or cloud data. The presence of Linux and Red Hat's container software in its product portfolio will help IBM retain its relevance to developers seeking to leverage cloud computing, said Del Prete. IDC.

On Sunday at Red Hat, some employees feared the acquisition would tarnish Red Hat's more open corporate culture, encouraging employees to participate in the development of open source software projects, even if they are not at the heart of his business. "There is still a very passionate core at Red Hat who really believes in the open-source mission," said one employee.

Another Red Hat employee also said he feared his culture would change, but he expected IBM's marketing potential and its broad sales reach among global corporations to be a boon to Red Hat. "If we can take advantage of these resources and continue to function as we do, we could be the best of both worlds," he said.

IBM intends to retain the culture of Red Hat, as well as its brand, said Ms Rometty.

IBM announced that the agreement would increase free cash flow and gross margin in the next 12 months, as well as grow revenue.

The acquisition, which has been approved by the IBM and Red Hat boards, is expected to be finalized in the second half of 2019.

-Dana Mattioli
contributed to this article.

Write to Jay Greene at [email protected] and Robert McMillan at [email protected]