IBM to Acquire Software Firm, Red Hat in Deal Worth $34 billion

IBM is acquiring Red Hat Inc. a U.S. software company,in a deal worth around $34 billion on Sunday. According to a statement by IBM, the $34 billion deal includes debt, and seeks to diversify its technology hardware and consulting business into higher-margin products and services.

“The acquisition of Red Hat is a game-changer … IBM will become the world’s No. 1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses,” IBM chief executive, Ginni Rometty said.

IBM, which has a market capitalisation of $114 billion, will pay $190 per share in cash for Red Hat, a 62 percent premium to Friday’s closing share price.

Founded in 1993, Red Hat specialises in Linux operating systems.

The acquisition illustrates how older technology companies are turning to deals as a way to scale and keep away 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 last five years, while Red Hat shares are up 170 percent over the same period.

One of IBM’s main competitors, Dell Technologies Inc acquired software and cloud computing company, EMC for $67 billion two years ago. As part of that deal, Dell inherited an 82 percent stake in virtualization 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 will continue to be led by Red Hat CEO, Jim Whitehurst and Red Hat’s current management team and intends to maintain Red Hat’s headquarters, facilities, brands and practices.