IBM Buys Red Hat for $34B
October 29, 2018
and Red Hat have reached a definitive agreement under which IBM will
acquire all of the issued and outstanding common shares of Red Hat for
$190.00 per share in cash, representing a total enterprise value of
approximately $34 billion.
"The acquisition of Red Hat is a game-changer. It changes everything
about the cloud market," said Ginni Rometty, IBM Chairman, President and
Chief Executive Officer. "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.
"Most companies today are only 20 percent along their cloud journey,
renting compute power to cut costs," she said. "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."
acquisition of Red Hat reinforces IBM's high-value model. It will
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.
"Open source is the default choice for modern IT solutions, and I'm
incredibly proud of the role Red Hat has played in making that a reality
in the enterprise," said Jim Whitehurst, President and CEO, Red Hat.
"Joining forces with IBM will provide us 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 – all while preserving our unique culture and unwavering
commitment to open source innovation."
This acquisition brings together the best-in-class hybrid cloud
providers and will enable companies to securely move all business
applications to the cloud. Companies today are already using multiple
clouds. However, research shows that 80 percent of business workloads
have yet to move to the cloud, held back by the proprietary nature of
today's cloud market. This prevents portability of data and applications
across multiple clouds, data security in a multi-cloud environment and
consistent cloud management.
IBM and Red Hat will be strongly positioned to address this issue and
accelerate hybrid multi-cloud adoption. Together, they will help clients
create cloud-native business applications faster, drive greater
portability and security of data and applications across multiple public
and private clouds, all with consistent cloud management. In doing so,
they will draw on their shared leadership in key technologies, such as
Linux, containers, Kubernetes, multi-cloud management, and cloud
management and automation.
IBM's and Red Hat's partnership has spanned 20 years, with IBM serving
as an early supporter of Linux, collaborating with Red Hat to help
develop and grow enterprise-grade Linux and more recently to bring
enterprise Kubernetes and hybrid cloud solutions to customers. These
innovations have become core technologies within IBM's $19 billion
hybrid cloud business. Between them, IBM and Red Hat have contributed
more to the open source community than any other organization.
"Today's announcement is the evolution of our long-standing
partnership," said Rometty. "This includes our joint Hybrid Cloud
collaboration announcement in May, a key precursor in our journey to
With this acquisition, IBM will remain committed to Red Hat's open
governance, open source contributions, participation in the open source
community and development model, and fostering its widespread developer
ecosystem. In addition, IBM and Red Hat will remain committed to the
continued freedom of open source, via such efforts as Patent Promise,
GPL Cooperation Commitment, the Open Invention Network and the LOT
IBM and Red Hat also will continue to build and enhance Red Hat
partnerships, including those with major cloud providers, such as Amazon
Web Services, Microsoft Azure, Google Cloud, Alibaba and more, in
addition to the IBM Cloud. At the same time, Red Hat will benefit from
IBM's hybrid cloud and enterprise IT scale in helping expand their open
source technology portfolio to businesses globally.
"IBM is committed to being an authentic multi-cloud provider, and we
will prioritize the use of Red Hat technology across multiple clouds"
said Arvind Krishna, Senior Vice President, IBM Hybrid Cloud. "In doing
so, IBM will support open source technology wherever it runs, allowing
it to scale significantly within commercial settings around the world."
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 heritage and commitment, current
product portfolio and go-to-market strategy, and unique development
culture. Red Hat will continue to be led by Jim Whitehurst and Red Hat's
current management team. Jim Whitehurst also will join IBM's senior
management team and report to Ginni Rometty. IBM intends to maintain Red
Hat's headquarters, facilities, brands and practices.
"IBM's commitment to keeping the things that have made Red Hat
successful - always thinking about the customer and the open source
community first – make this a tremendous opportunity for not only Red
Hat but also open source more broadly," said Paul Cormier, President,
Products and Technologies, Red Hat. "Since the day we decided to bring
open source to the enterprise, our mission has remained unchanged. And
now, one of the biggest enterprise technology companies on the planet
has agreed to partner with us to scale and accelerate our efforts,
bringing open source innovation to an even greater swath of the
The company will continue with a disciplined financial policy and is
committed to maintaining strong investment grade credit ratings. The
company will target a leverage profile consistent with a mid to high
single A credit rating. The company intends to suspend its share
repurchase program in 2020 and 2021.
At signing, the company has ample cash, credit and bridge lines to
secure the transaction financing. The company intends to close the
transaction through a combination of cash and debt.
The acquisition has been approved by the boards of directors of both IBM
and Red Hat. It is subject to Red Hat shareholder approval. It also is
subject to regulatory approvals and other customary closing conditions.
It is expected to close in the latter half of 2019.