IBM to buy software company Red Hat in deal valued at $34 billion
IBM will pay $190 per share in cash for Red Hat
Sunday, 28th October 2018
American international information technology company IBM Corp is going to buy the U.S. software company Red Hat Inc in a 34 billion deal.
The company said on Sunday it had agreed to acquire U.S. 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.
This is the biggest acquisition of IBM so far. It underscores IBM Chief Executive Ginni Rometty’s efforts to expand the company’s subscription-based software offerings, as it faces slowing software sales and waning demand for mainframe servers.
IBM will pay $190 per share in cash for Red Hat, a 63 percent premium to Friday’s closing share price. IT giant has a market capitalization of $114 billion.
Red Hat was founded in 1993, software is specialized 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.
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.
IBM’s CEO Rometty said Red Hat is one of the very few companies in the cloud computing sector that has both revenue growth and free cash flow. “This acquisition we are clearly doing for growth synergies. This is not about cost synergies at all,” Rometty said in an interview to the agency.
American IT company is hoping the deal will help it catch up with Amazon.com Inc, Alphabet Inc and Microsoft in the rapidly growing cloud business. IBM shares have lost almost a third of their value in the past five years, while Red Hat shares are up 170 percent over the same period.
“This deal represents the culmination of IBM’s existing partnership with Red Hat, and, in our view, allows IBM to gain a highly strategic asset to advance its hybrid cloud initiatives,” Barclays analysts wrote in a research note.
(Agency inputs used)
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