IBM to buy cloud software firm Red Hat 

The deal has been valued at $34-billion. 

IBM has announced that it will buy Red Hat, the world's leading provider of open source cloud software, for $34-billion (R498 billion).

The acquisition price is more than a quarter of IBM’s market capitalisation of $109.2 billion (R1.6 trillion) and comes at a time when the company attempts to grow its exposure in the fast-growing cloud computing market. 

IBM will acquire all issued and outstanding common shares of Red Hat for $190.00 (R2 788) per share in cash, the company said.  

"The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,” said Ginni Rometty, IBM chairman, president, and CEO, in a statement. “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.”

The acquisition has been approved by the boards of directors of both IBM and Red Hat.  It is subject to Red Hat shareholder approval and regulatory approvals. The deal is expected to close in the latter half of 2019.

“Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs,” said Ginni. “The next 80 percent is about unlocking real business value and driving growth. This is the next chapter of the cloud. It requires shifting business applications to hybrid cloud, extracting more data and optimising every part of the business, from supply chains to sales.”

Red Hat CEO Jim Whitehurst said the deal will provide Red Hat with a “greater level of scale, resources and capabilities to accelerate the impact of open source as the basis for digital transformation and bring Red Hat to an even wider audience” while preserving innovation in open-source software.

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 and current product portfolio. Red Hat will continue to be led by Jim and Red Hat's current management team. Jim also will join IBM's senior management team and report to Ginni. IBM intends to maintain Red Hat's headquarters, facilities, brands and practices.

The acquisition of Red Hat is expected to accelerate IBM's revenue growth, gross margin and free cash flow within 12 months of closing. 

It also will support a solid and growing dividend, IBM said.