IBM to revolutionise the cloud with $34 billion Red Hat deal

IBM (NYSE:IBM) announced its plan to acquire Red Hat (NYSE:RHT), a leading provider of open source cloud software, for $190 per share in cash, valuing the business at around $34 billion.

The deal was labelled a ‘game-changer’ by IBM’s Chairman and CEO Ginni Rometty, with the acquisition helping the IT company to become one of the world’s largest hybrid cloud providers.

IBM: the next chapter of the cloud

The acquisition will allow IBM to accelerate hybrid multi-cloud adoption, helping its clients to create cloud-native business applications, increase portability and improve overall security of data across multiple public and private cloud.

‘Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs,’ Rometty 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,’ she added.

Prior to the deal, IBM and Red Hat were engaged in a partnership that spanned 20 years, with the two companies collaborating with to create hybrid cloud solutions for its customers.

‘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,’ Jim Whitehurst, President and CEO of Red Hat said.

‘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.’

IBM sees share price decline

IBM has seen its share price fall by around 26% from a high of 169p in January this year, with the stock hovering at around 125p on Monday.

the company will hope that the acquisition will prompt its share price to rise, with the deal ‘reinforcing IBM’s high-value model’ and helping it to accelerate revenue growth and a growing dividend for its shareholders, the company said.

The acquisition remains subject to Red Hat shareholders and regulatory approvals, with the deal expected to close in the second half of 2019.