IBM moves further into the cloud with $34-billion Red Hat deal

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IBM Corp said on Sunday it had 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.

A logo of IBM is seen at the Mobile World Congress in Barcelona, Spain February 28, 2018.

While AWS and Microsoft haven't had much trouble courting those companies, IBM and Red Hat will attempt to argue that they'll offer the most "open" approach to the hybrid cloud given Red Hat's open-source legacy and their commitment to helping those companies navigate multiple public cloud options, which can be very complicated at older companies that lack cutting-edge IT talent.

The deal will see IBM acquire all of the issued and outstanding common shares of Red Hat for US$190.00 per share in cash, more than US$70 above the US$116.68 at which Red Hat was trading on close of business on Friday.

"Powered by IBM, we can dramatically scale and accelerate what we are doing today", Red Hat president and CEO Jim Whitehurst wrote in an email to employees today.

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"The acquisition of Red Hat is a game-changer", said Ginni Rometty, CEO of IBM. This is the next chapter of the cloud.

The Center for Media Justice launched an online petition previous year to stop IBM from developing cloud resources that would use facial recognition technology to identify undocumented immigrants so that they can be detained, denied visas and deported from the United States. It sells features and support on a subscription basis to its corporate customers. 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 enterprise. With the rise of proprietary cloud computing infrastructure and services, however, Red Hat itself might be feeling the pressure to find new sources of revenue. The two companies called the acquisition a logical step after they've worked together for 20 years, saying IBM served as an early supporter of Linux, a key component of Red Hat's software distribution system.

The acquisition is subject to regulatory approval and to Red Hat shareholder approval.

The NSA uses Red Hat Linux for the most part to run its XKEYSCORE program - an application that The Intercept, the website run by journalist Glenn Greenwald, describes as NSA's Google for private communications. "This is an acquisition for revenue growth, this is not for cost synergies". "IBM intends to maintain Red Hat's headquarters, facilities, brands and practices".

With the deal, IBM and Red Hat are clearly setting their sights on major enterprise companies that have struggled to keep up with younger challengers built around more nimble IT strategies.