Coverage: IBM is buying Red Hat for $34 billion

IBM Co. announced Sunday afternoon that it will acquire open-source software company Red Hat Inc. for $34 billion, helping IBM expand its reach as an enterprise cloud computing provider.

Andrew Liptak of The Verge had the news:

Red Hat describes itself as a leading provider of open source software and services for enterprise customers, focusing on cloud computing and Linux servers. In 2012, it became the first company providing open-source software to surpass $1 billion in revenue. It will now become a part of IBM’s Hybrid Cloud division.

In its release, IBM says that its services will allow more businesses to shift their operations online, and that the proprietary nature of existing cloud systems means that it’s harder to move and secure data from system to system.

IBM says that the acquisition will allow it to expand its cloud computing offerings. Chairman, President and CEO Ginni Rometty says that “most companies today are only 20 percent along their cloud journey, renting [computer] power to cut costs. The next 80 percent is about unlocking real business value and driving growth.” For its part, Red Hat President and CEO Jim Whitehurst noted that IBM will allow his company reach a far wider audience, and that IBM will preserving the company’s “unwavering commitment to open source innovation.”

Ingrid Lunden of TechCrunch reported that the deal shows how IBM is betting on the cloud:

The deal is all about IBM — which has long continued to rely on its legacy server business — taking a bigger bet on the cloud, and very specifically cloud services that blend on-premises and cloud-based architectures — something that the two companies have already been working on together since May of this year (which now might be looked at as a test drive). Red Hat will be a distinct unit within IBM’s Hybrid Cloud team — which is already a $19 billion business for IBM, the company said — and it will continue to focus on open-source software.

“The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,” said Ginni Rometty, IBM Chairman, President and Chief Executive Officer, in a statement. “IBM will become the world’s number-one hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.”

The combined businesses will be able to offer software in services spanning Linux, containers, Kubernetes, multi-cloud management, and cloud management and automation, IBM said. IBM also added that together the companies will continue to build partnerships with multiple cloud providers, including AWS, Microsoft’s Azure, Google Cloud, Alibaba and others, alongside the IBM Cloud.

Alex Sherman and Lora Kolodny of CNBC.com reported that the deal is the third-biggest ever in tech:

The acquisition is by far IBM’s largest deal ever, and the third-biggest in the history of U.S. tech. Excluding the AOL-Time Warner merger, the only larger deals were the $67 billion merger between Dell and EMC in 2016 and JDS Uniphase’s $41 billion acquisition of optical-component supplier SDL in 2000, just as the dot-com bubble was bursting.

Red Hat started 25 years ago as a distributor of a particular flavor of Linux, an open-source operating system that is commonly used in server computers that power company data centers. Today, Red Hat is known for distributing and supporting Red Hat Enterprise Linux, as well as other technologies commonly used in data centers. The company, which went public at the peak of the dot-com boom in 1999, earned $259 million on revenue of $2.92 billion in its last fiscal year, which ended Feb. 28. Its revenue grew 21% between the 2017 and 2018 fiscal years.

Rometty told CNBC that the deal should not be interpreted as part of any plan for her to transition out of her position as CEO at IBM.