IBM to acquire Red Hat in deal valued at $34 billion
IBM announced plans to acquire Red Hat in a deal valued at about $34 billion.
Prior to the acquisition, Red Hat's market capitalization stood at approximately $20.5 billion.
The acquisition is by far IBM's largest deal ever, and the third-biggest in the history of U.S. tech.
IBM is acquiring Red Hat, a major distributor of open-source software
and technology, in a deal valued around $34 billion, the companies
announced on Sunday.
According to a joint statement, IBM will pay cash to buy all shares in
Red Hat at $190 each. Shares in Red Hat closed at $116.68 on Friday
before the deal was announced.
The open source, enterprise software maker will become a unit of IBM's
Hybrid Cloud division, with Red Hat CEO Jim Whitehurst joining IBM's
senior management team and reporting to CEO Ginni Rometty.
J.P. Morgan advised IBM and is leading the financing for the Red Hat deal.
The acquisition is by far IBM's largest deal ever, and the third-biggest
in the history of U.S. tech. Excluding the AOL-Time Warner merger, the
only larger deals were the $67 billion merger between Dell and EMC in
2016 and JDS Uniphase's $41 billion acquisition of optical-component
supplier SDL in 2000, just as the dot-com bubble was bursting.
Red Hat started 25 years ago as a distributor of a particular flavor of
Linux, an open-source operating system that is commonly used in server
computers that power company data centers. Today, Red Hat is known for
distributing and supporting Red Hat Enterprise Linux, as well as other
technologies commonly used in data centers. The company, which went
public at the peak of the dot-com boom in 1999, earned $259 million on
revenue of $2.92 billion in its last fiscal year, which ended Feb. 28.
Its revenue grew 21% between the 2017 and 2018 fiscal years.
Rometty told CNBC that the deal should not be interpreted as part of any
plan for her to transition out of her position as CEO at IBM.
"I'm still young and I'm not going anywhere," she told CNBC.
IBM will pause share repurchases in 2020 and 2021, but won't touch its
dividend. The pause is a cautionary measure as the company plans on
returning to its normal leverage ratio in about two years.
Open source has been the biggest theme in technology this year. Prior to
IBM's purchase of Red Hat, two of the biggest tech deals of the year
were Microsoft's $7.5 billion purchase of GitHub, a code-sharing
service, and Salesforce's $6.5 billion acquisition of MuleSoft, whose
technology stitches together disparate software applications, data and
devices. Earlier this month, big-data rivals Cloudera and Hortonworks
agreed to merge in a $5.2 billion deal.
Both Rometty and Whitehurst, in comments to CNBC, agreed that
Microsoft's purchase of GitHub was "irrelevant" to IBM and Red Hat's
decision to enter into a deal.
While Red Hat has talked for years about potentially selling itself to
other companies, including Google, never has anything gotten nearly as
serious as the negotiations with IBM, according to people familiar with
the matter.
"We were not looking to do something," Whitehurst told CNBC.
IBM reported lighter-than-expected revenue in its most recent earnings
update, and its revenues shrank from the previous year after three
quarters of growth. Prior to that brief growth period, the company's
revenues had been slowly declining for about five years.
The company has been working to catch up to Amazon and Microsoft in the cloud infrastructure business.
Cloud is one of IBM's four key strategic imperatives, or growth drivers
-- the others are social, mobile and analytics -- and in the quarter,
IBM announced cloud deals with Economical Insurance, ExxonMobil and
Novis.
IBM and Red Hat said the deal would enable businesses to do even more
work in the cloud, keeping their apps and data portable and secure, no
matter which cloud or hybrid technologies they adopt.
https://www.geezgo.com/sps/44600
Join Geezgo for free. Use Geezgo's end-to-end encrypted Chat with your Closenets (friends, relatives, colleague etc) in personalized ways.>>
No comments