The 107-year-old United States company will pay Red Hat's shareholders a 62pc premium for their shares in a bid to accelerate its growth into the emerging $1trillion growth market for cloud-based computing systems. In other words, an open cloud provider improved by Red Hat's decades of knowledge in Linux and open source. "The acquisition of Red Hat is a game-changer", Ginni Rometty, IBM's chairman and chief executive, said in a statement.
Under the deal, Red Hat will be incorporated into IBM's Hybrid Cloud division. The real question is whether Red Hat's influence on Linux and open source will grow now that it has IBM's financial backing. "The largest software transaction in history and it's an open source company".
It's a bold stroke because Linux has become the most common OS in public clouds.
The company will be paying through cash and debt, as opposed to share exchange, but did not specify the proportions. It has faced years of revenue declines, as it transitions its legacy computer maker business into new technology products and services. "It changes everything about the cloud market".
Finally, the firms say that Red Hat will remain independent.
IBM and Red Hat will be strongly positioned to address this issue and accelerate hybrid multi-cloud adoption.
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.
The Red Hat purchase will give IBM an immediate cloud revenue boost growth as well as a suite of proven software products to sell through its global sales force. IBM shares have lost nearly a third of their value in the past five years, while Red Hat shares are up 170 percent over the same period.
"Importantly, Red Hat is still Red Hat".
Anticipating concerns that the acquisition would endanger Red Hat's appeal as an agnostic provider of open-source software, IBM said it 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".
Red Hat shareholders still have to approve the deal, but the board of directors at each company has signed off, and it's hard to imagine strong protests from Red Hat shareholders given the premium over its most recent closing price.
The two brands also re-affirmed that the open-source nature of Red Hat will be maintained, and codes will still be contributed to the community.
For all that, maintaining Red Hat's standing and culture could prove hard for the company once known as Big Blue.
IBM revealed that it will be spending $34 billion for this acquisition, which should close in the second half of 2019 if it passes regulations.