IBM Spends $34B To Buy Red Hat

IBM Corp says it has agreed to acquire US software company Red Hat Inc for $34 billion, including debt, as it seeks to diversify its technology hardware and consulting business into higher-margin products and services.

The transaction is by far IBM's biggest acquisition. It underscores IBM Chief Executive Ginni Rometty's efforts to expand the company's subscription-based software offerings, as it faces slowing software sales and waning demand for mainframe servers.

IBM, which has a market capitalisation of $114 billion, will pay $190 per share in cash for Red Hat, a 63 percent premium to Friday's closing share price.

Founded in 1993, Red Hat specialises in Linux operating systems, the most popular type of open-source software, which was developed as an alternative to proprietary software made by Microsoft Corp. Headquartered in Raleigh, North Carolina, Red Hat charges fees to its corporate customers for custom features, maintenance and technical support, offering IBM a lucrative source of subscription revenue.

Red Hat is one of the very few companies in the cloud computing sector that has both revenue growth and free cash flow, Rometty, (pictured) who has been IBM's CEO since 2012, said in an interview with Reuters.

"This acquisition we are clearly doing for growth synergies. This is not about cost synergies at all," Rometty said in the interview.

The acquisition illustrates how older technology companies are turning to deal-making to gain scale and fend off competition, especially in cloud computing, where customers using enterprise software are seeking to save money by consolidating their vendor relationships.

IBM is hoping the deal will help it catch up with Amazon.com Inc, Alphabet Inc and Microsoft in the rapidly growing cloud business. IBM shares have lost almost a third of their value in the past five years, while Red Hat shares are up 170 percent over the same period.

Big Blue
IBM was founded in 1911 and is known in the technology industry as Big Blue, a reference to its once ubiquitous blue computers. It has faced years of revenue declines, as it transitions its legacy computer maker business into new technology products and services. 

Its recent initiatives have included artificial intelligence and business lines around Watson, named after the super-computer it developed.

 IBM is no stranger to acquisitions. It acquired cloud infrastructure provider Softlayer in 2013 for $2 billion, and the Weather Channel's data assets for more than $2 billion in 2015. It also acquired Canadian business software maker Cognos in 2008 for $5 billion.

Other big technology companies have also recently sought to reinvent themselves through acquisitions. Microsoft this year acquired open source software platform GitHub for $7.5 billion; chip maker Broadcom Inc agreed to acquire software maker CA Inc for nearly $19 billion; and Adobe Inc agreed to acquire marketing software maker Marketo for $5 billion.

One of IBM's main competitors, Dell Technologies Inc, made a big bet on software and cloud computing two years ago, when it acquired data storage company EMC for $67 billion. As part of that deal, Dell inherited an 82 percent stake in virtualisation software company VMware Inc.

The deal between IBM and Red Hat is expected to close in the second half of 2019. IBM said it planned to suspend its share repurchase program in 2020 and 2021 to help pay for the deal. IBM said Red Hat would continue to be led by Red Hat CEO Jim Whitehurst and Red Hat's current management team. It intends to maintain Red Hat's headquarters, facilities, brands and practices.

Lazard Ltd offered financial advice to IBM, alongside Goldman Sachs Group Inc and JPMorgan Chase & Co. The JPMorgan CEO Jamie Dimon said in a statement.

"Knowing first-hand how important open, hybrid cloud technologies are to helping businesses unlock value, we see the power of bringing these two companies together, and are honored to advise IBM and commit financing for this transaction,"

Yahoo Finance

You Might Also Read: 

Who's Responsible For Cloud Security?:

 

« Britain To Spend Up To £1B Extra On Cyber Warfare
Russia And US Offer Competing Visions Of Cyber Normality »

Infosecurity Europe
CyberSecurity Jobsite
Perimeter 81

Directory of Suppliers

TÜV SÜD Academy UK

TÜV SÜD Academy UK

TÜV SÜD offers expert-led cybersecurity training to help organisations safeguard their operations and data.

Resecurity

Resecurity

Resecurity is a cybersecurity company that delivers a unified platform for endpoint protection, risk management, and cyber threat intelligence.

Jooble

Jooble

Jooble is a job search aggregator operating in 71 countries worldwide. We simplify the job search process by displaying active job ads from major job boards and career sites across the internet.

North Infosec Testing (North IT)

North Infosec Testing (North IT)

North IT (North Infosec Testing) are an award-winning provider of web, software, and application penetration testing.

Directory of Cyber Security Suppliers

Directory of Cyber Security Suppliers

Our Supplier Directory lists 7,000+ specialist cyber security service providers in 128 countries worldwide. IS YOUR ORGANISATION LISTED?

Team Cymru Research NFP

Team Cymru Research NFP

Team Cymru Research is a group of technologists passionate about making the Internet more secure and dedicated to that goal.

Kramer Levin

Kramer Levin

Kramer Levin is a full-service law firm with offices in New York and Paris. Practice areas include Cybersecurity, Privacy and Data Protection.

PETRAS IoT Hub

PETRAS IoT Hub

PETRAS is a consortium of 12 research institutions and the world’s largest socio-technical research centre focused on the future implementation of the IoT.

ICS2

ICS2

ICS² is the first cyber security company focusing on protecting the control system of power, oil, gas, and petrochemicals plants.

Rafael

Rafael

Rafael has more than 15 years of proven experience in the cyber arena providing solutions for national security as well as commercial applications.

Mitre ATT&CK

Mitre ATT&CK

MITRE ATT&CK™ is a globally-accessible knowledge base of adversary tactics and techniques based on real-world observations.

ZenGRC

ZenGRC

ZenGRC (formerly Reciprocity) is a leader in the GRC SaaS landscape, offering robust and intuitive products designed to make compliance straightforward and efficient.

Critical Insight

Critical Insight

Critical Insight provide Managed Detection and Response, Vulnerability Detection, and Consulting Services to help you secure your mission-critical systems.

Augusta HiTech

Augusta HiTech

Augusta Hitech is a focused product development, software services and technology consulting company. Our Vision is to become the most socially impactful and innovative technology company in the world

astarios

astarios

astarios provide near-shore software development services including secure software development (DevSecOps), quality assurance and testing.

NetApp Excellerator

NetApp Excellerator

NetApp Excellerator is NetApp’s global start-up program that aims to fuel innovation by partnering with deep-tech start-ups.

Noblis

Noblis

Noblis is a dynamic science, technology, and strategy organization dedicated to creating forward-thinking technical and advisory solutions in the public interest.

Security Risk Management (SRM)

Security Risk Management (SRM)

SRM provide a comprehensive security risk management service encompassing people, processes, technology, governance, compliance and risk management.

ID R&D

ID R&D

ID R&D is an award-winning provider of AI-based facial liveness, document liveness, and voice biometrics.

Brunswick Group

Brunswick Group

Brunswick is a critical issues firm. We advise the world’s leading companies on how to navigate the critical issues they face and engage with their critical stakeholders.

Ebryx

Ebryx

At Ebryx, we are at the forefront of cybersecurity innovation, leveraging over a decade of expertise to protect and empower organizations worldwide.