IBM to acquire Red Hat in $34B blockbuster deal

IBM is seen at the Mobile World Congress in Barcelona Spain

IBM is in talks to acquire Red Hat, the open source enterprise software company, according to Bloomberg.

Founded in 1993, Red Hat launched its famous version of Linux OS a year later, becoming a pioneering proponent of the open source movement that arose to counter giants like Microsoft whose models were based on keeping their source code secret.

The acquisition - IBM's largest ever - highlights the company's efforts to increase subscription-based software offerings as demand for mainframe servers and software declines.

"Powered by IBM, we can dramatically scale and accelerate what we are doing today", Red Hat president and CEO Jim Whitehurst wrote in an email to employees today.

"The acquisition of Red Hat is a game-changer", said Ginni Rometty, CEO of IBM.

"IBM and Red Hat - the world's leading provider of open source cloud software - announced today that the companies have reached a definitive agreement under which IBM will acquire all of the issued and outstanding common shares of Red Hat for $190.00 per share in cash, representing a total enterprise value of approximately $34 billion", the statement reads.

The 107-year-old USA company will pay Red Hat's shareholders a 62pc premium for their shares in a bid to accelerate its growth into the emerging $1trillion growth market for cloud-based computing systems.

The acquisition has been approved by the board of directors at both companies, but it must still be approved by Red Hat shareholders and is subject to regulatory approvals and other closing conditions.

IBM paid $34 billion for Red Hat and a chance to be a cloud player-private, public and hybrid-with an ultimate goal of managing multiple clouds in the enterprise. Red Hat meanwhile reported its earnings back in September which were also disappointing and its share price has dropped 19% since then.

Venero said he is hopeful IBM will continue the strong channel relationships that Red Hat has built with partners rather than taking deals direct.

In addition, the combined entity will "remain committed" to the "continued freedom" of open source, via such efforts as Patent Promise, GPL Cooperation Commitment, the Open Invention Network and the LOT Network. This is the next chapter of the cloud. The oldest company in technology believes that Red Hat can help its customers, many of which are still running the bulk of their their IT infrastructure in the old-fashioned way, address the modern era of multicloud and hybrid computing driven by Linux and containers. Red Hat's current management team, led by president and CEO Jim Whitehurst, will remain in place.

IBM intends to maintain Red Hat's headquarters, facilities, brands and practices.

In its early days, the company enjoyed the advantage of being used extensively by the United States military as the Department of Defence has certified its Red Hat Enterprise Linux product for use. Whitehurst also will join IBM's senior management team and report to Rometty.

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