The companies said that Red Hat will become part of IBM's hybrid cloud business "as a distinct unit, preserving the independence and neutrality of Red Hat's open source development heritage and commitment, current product portfolio and go-to-market strategy, and unique development culture".
Wall Street types are likely to worry about the premium and IBM's ability to grow even with Red Hat.
IBM shares closed on October 26 at $124.79, just off the 52-week low of $123.71. As we've reported in the past, we expected to see a significant increase in mergers and acquisition activity in the wake of President Trump's corporation tax repatriation holiday and indeed IBM was one of the beneficiaries of that plan given it had a sizeable overseas cash pile.
For IBM, the acquisition is about growing IBM's business in the cloud-private, public, and hybrid-based on the position of the company as the open source and open standards player versus the "proprietary" models of Microsoft, Amazon, and other major cloud players.
"IBM is committed to being an authentic multi-cloud provider, and we will prioritize the use of Red Hat technology across multiple clouds" said Arvind Krishna, Senior Vice President, IBM Hybrid Cloud.
"This is a very fair price...(Red Hat CEO Jim Whitehurst) has built a great company, and unlike others, high growth, high profit and cash and so this is why I think really those are important things for our investors", Rometty said.
IBM will be suspending its share repurchases program in 2020 and 2021, the statement claimed, but it was also said that the dividend will not be touched. Microsoft continued its transition from closed software box-shifter with the recent $7.5 billion acquisition of code sharing platform GitHub. Red Hat gives IBM software heft and an OpenStack playbook that can rival VMware, which incidentally has become quite cozy with AWS.
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"The next 80% percent is about unlocking real business value and driving growth".
"Today's announcement is the evolution of our long-standing partnership", Rometty said.
Cloud-based phone systems provider RingCentral (RNG), process- optimization software company Aspen Technology (AZPN) and e-signature leader DocuSign (DOCU) round off Auty's list of potential strategic takeovers. This is the next chapter of the Cloud. Those projects included developing Linux for the enterprise and more recently, on hybrid cloud infrastructure. It also intends to maintain Red Hat's headquarters, facilities, brands and practices.
As far and fast as cloud computing is embedding itself into the enterprise, there remain many cloud-resistant applications and services.
In its second-quarter results, Red Hat missed revenue estimates and issued guidance below analysts' predictions, but its subscription revenue was still up 20 percent YoY to $722 million.
The deal comes just two weeks after IBM reported that its sales for its quarter ended September 30 came in at $18.8 billion, down two percent from year ago period, but flat when adjusted for currency fluctuations.