Describing it as the “largest software company acquisition to date,” Red Hat announced on Sunday afternoon that it’s signed an agreement to be acquired by IBM Corp. for $34 billion USD.
Raliegh, N.C.-based Red Hat was founded in 1993 and has built a multi-national firm based on providing enterprise services around open source software, and is perhaps best known for its Linux server operating system. It’s collaborated with the wide-ranging IT solutions and services provider IBM for the past 20 years, according to a press release. Those projects included developing Linux for the enterprise and more recently, on hybrid cloud infrastructure.
In a statement, IBM CEO Gini Rometty framed the deal as one that will make IBM the leader in hybrid cloud solutions, and remain firmly committed to open source. She says Big Blue is set up to lead a market that’s worth more than $1 trillion.
“Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs,” she said in the press release. “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 optimizing every part of the business, from supply chains to sales.”
Red Hat will remain a distinct unit in IBM, writes Jim Whitehurst, president and CEO of Red Hat in a blog post. He says an all-hands company meeting will be held on Monday and include Rometty – his new boss.
“Our unwavering commitment to open source innovation remains unchanged. The independence IBM has committed to will allow Red Hat to continue building the broad ecosystem that enables customer choice and has been integral to open source’s success in the enterprise,” he writes. “IBM is acquiring Red Hat for our amazing people and our incredibly special culture and approach to making better software. They understand and value how and why we are different and they are committed to allowing us to remain Red Hat while scaling and accelerating all that makes us great with their resources.”
The press release goes on to stress Red Hat’s legacy of commitments to open source software. That puts the cloud solutions offered by a merged IBM and Red Hat at direct odds with current public cloud leader Amazon Web Services, which uses a proprietary system. Microsoft Azure, the second-place player in the public cloud market, also uses a proprietary approach. There is another open source cloud vendor in the market, Paris-based OVH, which is a leader in Europe and just starting to scale up globally.
Another claim made in the press release is that combined, Red Hat and IBM “have contributed more to the open source community than any other organization.” It’s not clear by what metric that is measured. When it bought GitHub, Microsoft claimed it was the single biggest contributor to open source. That claim is backed up by GitHub’s annual “Octoverse 2018” report that shows Microsoft had the most employees contributing to GitHub, with 7,700, and many Microsoft projects were among the most-contributed to on GitHub. Red Hat had 3,300 employees involved (third place behind Google), and IBM didn’t rank in the top 10.
IBM’s commitment to Red Hat’s open source ethos is echoed in a blog post by Paul Cormier, executive vice-president of products and technologies at Red Hat. “By joining IBM, Red Hat can deliver even more open source innovation to customers at a larger scale,” he writes.
The $34 billion price tag on this deal makes it the second highest value tech-sector acquisition of all time, based on IT World Canada’s list. It’s second only to the 2015 deal between Dell Technologies and EMC at $67 billion, and just ahead of HP’s acquisition of Compaq in 2001 at $33.6 billion. It’s the single largest acquisition IBM has ever made.
IBM didn’t offer guidance on when the acquisition will be completed. Red Hat says it plans to make its filing to the Security and Exchange Commission to begin the process.