IBM buys software company Red Hat for US$34b

IBM is reportedly nearing a deal to acquire Red Hat, the software company valued at $20 billion

IBM to acquire Red Hat in deal valued at $34B

IBM further says, "Upon closing of the acquisition, Red Hat will join IBM's Hybrid Cloud team as a distinct unit, preserving the independence and neutrality of Red Hat's open source development heritage and commitment, current product portfolio and go-to-market strategy, and unique development culture".

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.

The real question is whether Red Hat's influence on Linux and open source will grow now that it has IBM's financial backing. However, research shows that 80 per cent of business workloads have yet to move to the cloud, held back by the proprietary nature of today's cloud market. "IBM will become the world's #1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses".

That will come as news to Microsoft, which is, in fact, the world's number one hybrid cloud provider. This will likely not impact IBM's stature in the public cloud where the companies have a presence, but not almost as much as the private cloud.

It's not immediately obvious to me how the marriage between IBM and Red Hat brings combined value to the market.

"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.

At the same time, sales last quarter overall missed analysts' expectations and the forecast for the current quarter also fell short, fueling concerns Red Hat may be losing deals to rivals and growth may be slowing.

"Red Hat is still Red Hat", Whitehurst continues.

Still, the premium IBM is paying for the open-source icon indicates it's serious about making a bigger play for the cloud. In particular, they said they are committed to open-source efforts as Patent Promise, GPL Cooperation Commitment, the Open Invention Network and the LOT Network.

Both companies' boards have approved the deal but it is of course subject to shareholder and regulatory approvals with the acquisition expecting to close in the second half of 2019. Hell, Red hat is a billion dollar company - yes, billion with a "B".

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