IBM closes Red Hat deal

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IBM closes Red Hat deal

IBM said on Tuesday it has closed its US$34 billion acquisition of software company Red Hat.

The deal was the biggest in IBM's history and underscores the company's driven into the cloud.

Ginni Rometty, IBM chief executive since 2012, has steered the company toward faster-growing segments such as cloud, software and services and away from traditional hardware products, but not without a bumpy journey. The newer areas of focus have sometimes underwhelmed investors.

In an interview, Rometty said the deal was driven by what its customers wanted and helping companies "move mission-critical work" to the cloud, offering a variety of hybrid public and private clouds. "We have all the critical parts," she said.

Customers want hybrid cloud applications because they "look at their IT and they say, 'Look I can't just throw it all out and rebuild it'" and instead want a mix of public and private cloud applications "with one platform across it."

Rometty cited as examples major IBM cloud customers like Morgan Stanley and Delta Air Lines.

Delta chief executive Ed Bastian said in a statement the company has been "working with both IBM and Red Hat for years" and said the combined firm "will be an essential part of our digital transformation."

The company, which won approval for the purchase from US regulators in May and European Union regulators in late June, agreed to pay US$190 a share for Red Hat, representing a 63 percent premium.

Red Hat CEO Jim Whitehurst and his management team will remain in place. Whitehurst will join IBM’s senior management team and report to Rometty.

IBM will maintain Red Hat’s headquarters in Raleigh, North Carolina, and its facilities, brands and practices, and said it will operate as a distinct unit within IBM. Rometty said no job or cost cuts are planned at Red Hat.

IBM closed down 0.9 percent at US$139.33.

The companies said IBM and Red Hat will offer "a next-generation hybrid multicloud platform" that will be "based on open source technologies, such as Linux and Kubernetes."

IBM’s cloud strategy has focused on helping companies stitch together multiple cloud platforms rather than compete head-on with "hyperscale" cloud providers such as Amazon Web Services, Microsoft and Google .

IBM said Red Hat will continue "to build and expand its partnerships, including those with major cloud providers, such as Amazon Web Services, Microsoft Azure, Google Cloud and Alibaba."

Since 2013, IBM’s cloud revenue as a percentage of total revenue has grown sixfold to 25 percent. In the 12 months through the first quarter of 2019, cloud revenue exceeded $19 billion.

Red Hat is expected to contribute approximately two points of compound annual revenue growth over a five-year period, IBM said.

(Reporting by David Shepardson; editing by Steve Orlofsky and Jonathan Oatis)

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