IBM to Acquire Red Hat?

IBM stated to buy the software company Red Hat for $34 billion. The acquisition will take place as part of the strategy to diversify its technology hardware and consulting business into higher-margin products and services. 

IBM CEO Ginni Rometty was facing challenges in growing IBM revenue. While Red Hat has reported revenue of $823 million (+14 per cent) with subscription revenue of $723 million (+13 per cent), representing 88 per cent of total revenue, for the second quarter of the fiscal year 2019 ended August 31, 2018. 

IBM, which has a market capitalization of $114 billion, will pay $190 per share in cash for Red Hat, a 63 per cent premium to Friday’s closing share price.

The following acquisition will turn IBM the world’s #1 hybrid cloud provider, said IBM CEO Ginni Rometty.

Earlier, IBM reported revenue fall of 2 per cent to $18.8 billion in the third quarter ended September 2018 — due to slowing software sales and poor demand for mainframe servers. 

Red Hat is one of the very few companies in the cloud computing sector that has both revenue growth and free cash flow, Rometty, who has been IBM’s CEO since 2012, said in an interview with Reuters.

Cloud infrastructure service market share Q3 2018IBM and Red Hat will continue to build and enhance Red Hat partnerships with major cloud providers such as Amazon Web Services, Microsoft Azure, Google Cloud, Alibaba and more, in addition to the IBM Cloud. 

IBM said Red Hat would continue to be led by Red Hat CEO Jim Whitehurst and Red Hat’s current management team. It intends to maintain Red Hat’s headquarters, facilities, brands and practices.