IBM completes $34bn Red Hat acquisition

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Ginni Rometty, IBM chairman, president and CEO.
Ginni Rometty, IBM chairman, president and CEO.

IBM and Red Hat announced today they have closed the transaction under which IBM acquired all of the issued and outstanding common shares of Red Hat for $190 per share in cash, representing a total equity value of approximately $34 billion.

In a statement this afternoon, IBM says the acquisition redefines the cloud market for business. It adds that Red Hat’s open hybrid cloud technologies are now paired with IBM’ s innovation and industry expertise, and sales in more than 175 countries.

Earlier this year, Red Hat investors agreed to the $34 billion merger agreement between the company and IBM.

Together, IBM and Red Hat will accelerate innovation by offering a next-generation hybrid multi-cloud platform, the companies say. Based on open source technologies, such as Linux and Kubernetes, the platform will allow businesses to deploy, run and manage data and applications on-premises and on private and multiple public clouds, says IBM.

“Businesses are starting the next chapter of their digital reinventions, modernising infrastructure and moving mission-critical workloads across private clouds and multiple clouds from multiple vendors,” says Ginni Rometty, IBM chairman, president and CEO.

“They need open, flexible technology to manage these hybrid multi-cloud environments. And they need partners they can trust to manage and secure these systems. IBM and Red Hat are uniquely suited to meet these needs. As the leading hybrid cloud provider, we will help clients forge the technology foundations of their business for decades to come.”

“When we talk to customers, their challenges are clear: They need to move faster and differentiate through technology. They want to build more collaborative cultures, and they need solutions that give them the flexibility to build and deploy any app or workload, anywhere,” says Jim Whitehurst, president and CEO, Red Hat.

“We think open source has become the de facto standard in technology because it enables these solutions. Joining forces with IBM gives Red Hat the opportunity to bring more open source innovation to an even broader range of organisations and will enable us to scale to meet the need for hybrid cloud solutions that deliver true choice and agility.”

Red Hat will continue to be led by Whitehurst and its current management team. Whitehurst is joining IBM’s senior management team, reporting to Rometty. IBM will maintain Red Hat’s headquarters in Raleigh, North Carolina, its facilities, brands and practices. Red Hat will operate as a distinct unit within IBM and will be reported as part of IBM's Cloud and Cognitive Software segment.

Both companies have already built enterprise cloud businesses with strong revenue growth by helping organisations transition their business models to the cloud.

IBM's cloud revenue has grown from 4% of total revenue in 2013 to 25% today. The company’s cloud revenue for the 12-month period through the first quarter of this year grew to over $19 billion. The Red Hat acquisition is expected to contribute approximately two points of compound annual revenue growth to IBM over a five-year period.

Red Hat's fiscal year 2019 revenue was $3.4 billion, up 15% year-over-year. Fiscal first quarter 2020 revenue, reported in June, was $934 million, up 15% year-over-year.

In that quarter, subscription revenue was up 15% year-over-year, including revenue from application development-related and other emerging technology offerings up 24% year-over-year. Services revenue also grew 17%.

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