The Red Hat deal represents an admission by Rometty that in-house growth wasn't going to be enough to keep IBM from falling permanently behind in a market that is growing in importance and size. Presumably the acquisition will have to jump various regulatory hurdles before it is set in stone.
IBM chief executive Ginni Rometty says the acquisition would make IBM the world's No. 1 hybrid cloud provider - that's when companies use a mix of on-site, private and third-party public cloud services.
If you ask IBM, the deal is all about the cloud.
S&P downgraded International Business Machines (IBM) on Monday to A from A+, following the announced US$34bn acquisition of open source software solutions provider Red Hat. "This includes our joint Hybrid Cloud collaboration announcement in May, a key precursor in our journey to this day". IBM will also maintain Red Hat's Raleigh, N.C., headquarters, facilities, brands and practices, the companies said. The company focuses on a type of open-source software called Linux, an operating system that was created by Finnish programmer Linus Torvalds.
IBM said it will make the purchase with cash, credit and bridge lines, but did note that it would be disciplined to preserve its credit rating.
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But DiFucci questioned whether the Red Hat will be able to remain neutral under IBM's control.
The deal values the company at $190 a share, a almost 63 percent premium over where the stock traded on Friday, at $116.68. At the same time, Red Hat will benefit from IBM's hybrid cloud and enterprise IT scale in helping expand their open source technology portfolio to businesses globally. While things are all status quo for now, big companies do have the tendency to pull the rug from under such projects which, compared to other open source software, often need more resources to serve a large user base.
IBM said Red Hat will continue to build and enhance Red Hat's current partnerships, including those with major cloud providers, such as Amazon Web Services, Microsoft Azure, Google Cloud, Alibaba and more, in addition to the IBM Cloud.
Red Hat has been in business since 1993 and has expanded its offerings from Linux to a number of open source middleware products. Red Hat made bets to compensate for this, most prominently with OpenShift and a container platform.
The deal, which is subject to Red Hat shareholder approval, is expected to close in late 2019. In particular, they said they are committed to open-source efforts as Patent Promise, GPL Cooperation Commitment, the Open Invention Network and the LOT Network.
Rometty also noted IBM's long-term relationship in working with Red Hat.