IBM is buying Red Hat for $33 billion


News broke on Sunday that IBM is acquiring the enterprise Linux business Red Hat for a whopping $33.4 billion.

"The acquisition of Red Hat is a game-changer. It changes everything about the cloud market," Ginni Rometty, IBM's chairman and chief executive officer, said in the statement.

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The details: At $190 a share, IBM is paying a 63 percent premium on its 20-year partner, which closed at $116.68 per share on Friday.

What does this deal mean?

This is a cloud, or more specifically a hybrid cloud, play from IBM, a 107-year-old tech company that is as close to an elder statesman that this industry has.

"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," Rometty said in the statement.

"We will scale what Red Hat has deeply into many more enterprises than they're able to get to," Rometty told Bloomberg.

IBM clearly sees a huge opportunity in hybrid cloud, outlining in its statement on the acquisition: "Together, they will help clients create cloud-native business applications faster, drive greater portability and security of data and applications across multiple public and private clouds, all with consistent cloud management. In doing so, they will draw on their shared leadership in key technologies, such as Linux, containers, Kubernetes, multi-cloud management, and cloud management and automation."

Red Hat sells a range of enterprise software products based around the open source Linux operating system.

IBM said in a statement that it will "remain committed to Red Hat's open governance, open source contributions, participation in the open source community and development model, and fostering its widespread developer ecosystem. In addition, IBM and Red Hat 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."

The vendor also promised to maintain Red Hat's valuable partnerships: "Including those with major cloud providers, such as Amazon Web Services, Microsoft Azure, Google Cloud, Alibaba and more, in addition to the IBM Cloud. At the same time, Red Hat will benefit from IBM's hybrid cloud and enterprise IT scale in helping expand their open source technology portfolio to businesses globally."

Red Hat will sit as distinct entity within IBM's Hybrid Cloud division, led by current CEO Jim Whitehurst, who is joining IBM's senior management team. Roometty says the deal is about revenue growth not cost synergies, so there is not reason to expect job losses at this point.

Read next: What Microsoft's acquisition of Github means for the future of open source

This deal continues a trend of open source vendor acquisitions, following Microsoft's recently-closed $7.5 billion deal for GitHub, which gives these companies great access to an open source community, as well as a technology stack they are already very familiar with thanks to the longstanding partnership between the two vendors.

Copyright © 2018 IDG Communications, Inc.

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