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IBM Buys Open Source Stalwart Red Hat for $33B

The two companies are aiming to close the deal in 2019.

by Alexander Soule, The Hour / October 29, 2018

(TNS) IBM is spending $33 billion to acquire Red Hat, pledging to maintain the Raleigh, N.C. pioneer’s legacy of innovation on open-source software that can be run across computing platforms.

IBM, which has its headquarters close by Greenwich in Armonk, N.Y., trumpeted the deal announced Sunday as helping Big Blue push a vision of a “hybrid cloud” paradigm in which businesses can run their software applications over the Internet for access from any device, as well as within their own information technology infrastructure.

Red Hat stockholders are getting $190 for each share, which closed below $117 on Friday and spiked by more than half Monday morning to $172. The deal is subject to shareholder and regulatory approval, with IBM and Red Hat hoping to complete the merger in the first half of next year.

The companies announced a hybrid cloud collaboration in May which IBM CEO Ginni Rometty said was a precursor to the formal merger. Under CEO Jim Whitehurst, Red Hat had a 14 percent increase in third-quarter sales to $823 million, earning $89.6 million for the period.

Speaking Monday morning to investment analysts, Rometty referenced a “second chapter” of cloud computing that IBM hopes to dominate with Red Hat.

“In ... early cloud projects, the easy work is (done) — it’s mostly about productivity, some client-facing apps, and ... clients have moved 10 to 20 percent of their workload to the cloud,” Rometty said Monday. “But this is an inflection point, and if they’re going to get past that and move the other 80 percent — which is about all their processes and their data — they need what we’re going to offer together, this robust, hybrid environment.”

Red Hat was formed in the early 1990s by Bob Young and Marc Ewing who were distributing versions of the Linux operating system as a challenge to the industry oligarchy of Microsoft, IBM and Apple. Other Red Hat competitors today include the database giant Oracle which has a Stamford office, and the Amazon Web Services subsidiary of Amazon.

Red Hat was reportedly named for a Cornell University hat Ewing wore at the time, with Linux the 1991 invention of Finnish programmer Linus Torvalds who offered it for free, and companies like Red Hat using it as the foundation for sophisticated operating systems and software applications.

Revolutionary at the time, Linux has since gone mainstream, but cloud computing remains among the top 10 digital trends watched by the Stamford-based IT analysis firm Gartner, alongside artificial intelligence, peer-to-peer blockchain technologies, security and augmented reality apps.

“IBM believes Red Hat gives them a cloud platform that will make it easier for customers to deploy to multiple clouds which will help them capture share of the workloads that have yet to migrate to the cloud,” stated Dennis Gaughan, Gartner’s Boston-based chief of applications research, in an email response to a Hearst Connecticut Media query. “There is opportunity there, but this doesn’t mean that the other major cloud players will just let IBM win.”

IBM and Red Hat did not state any immediate impact on jobs, with the latter company reporting a workforce of 11,900 people as of February with Northeast locations including New York City, Mahwah, N.J., Boston and Westford, Mass. IBM employed nearly 367,00 people entering 2018, a reduction of 13,700 direct jobs from 12 months earlier.; 203-842-2545; @casoulman


©2018 The Hour (Norwalk, Conn.)

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