In its biggest ever software acquisition, IBM is all set to buy the U.S company Red Hat Inc for $34billion in cash and debt. With this acquisition, IBM is looking to get the much-needed ground in the emerging field of cloud computing in which it was trying to gain a foothold for long. Founded in 1993, Red Hat specializes in Linux operating systems, the most popular type of open-source software, which was developed as an alternative to proprietary software made by Microsoft Corp and is one of the very few companies in the cloud computing sector which has revenue growth, strong profits and free cash flow.
IBM, the 107-year old company, known in the technology industry as Big Blue has seen consistent fall in its revenue over the years. While some of that has been from divestitures, most of it is from declining sales in existing hardware, software, and services offerings, as the company has struggled to compete with younger technology companies. The stock is down 19 percent this year and 31 percent over the last five years, giving IBM a market value of $114billion. To be in the same league as Amazon and Microsoft, the company tried to steer its way into the emerging technologies like cloud computing and AI with inconsistent results which this acquisition is believed to alter. IBM has previously acquired cloud infrastructure provider Softlayer in 2013 for $2billion, and The Weather Channel‘s data assets for more than $2billion in 2015 to gain ground.
“The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,” said Ginni Rometty, IBM Chairman, President and Chief Executive Officer, in a statement announcing the acquisition. IBM is paying $195 per share of Red Hat which is a 63 percent premium over Red Hat’s closing price of $116.68 per share on Friday. “IBM will become the world’s number-one hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.”
Maybe Red hat is the one IBM needs to recover from the woes of much hyped-Watson to save its flagging business.