IBM revealed on Sunday that it has confirmed the deal with Red Hat—one of the first foremost open-source server operating system provider—for $34 billion, a step that would make the company a hybrid cloud provider of choice.
With $190 per share, the deal evaluated Red Hat 63% extra during its closing price on Friday in the stock market. The reason behind IBM willing to pay the extravagant amount to Red Hat is that IBM strongly believes that Red Hat can help its customers—the ones that are running the majority of their IT infrastructure in the outmoded ways—to embrace the modern times of hybrid and multicloud computing propelled by Linux.
The company further assured to maintain its partnerships with Red Hat’s major public cloud providers like Microsoft Azure and Amazon Web Services, indicating towards the fact that the company has acknowledged and stalled its own public cloud efforts.
Arvind Krishna, Senior Vice-President of IBM Hybrid Cloud stated that the company is focused on being a genuine multicloud provider and they plan on to give precedence to the use of Red Hat technology across multiple clouds. By doing this IBM will support open source technology, no matter where on earth it runs.
Red Hat Enterprise Linux—Red Hat’s flagship product—was the chosen operating system, over the last decade for private data center operators. Thus, this move of IBM will firmly establish Linux as a practical alternative to commercial Unix and Microsoft Windows Server operating system between those who operate their own data centers. Though the companies that deploy workloads on public cloud providers have a tendency to prefer Ubuntu Linux for the work and this issue when combined with an increase of rate towards the cloud, in general, has hindered the monetary growth in that field.
Nonetheless, Red Hat has viewed an increasing adoption of its container management software, which works in collaboration with Kubernetes and Docker to assist companies in managing hybrid applications deployed across the public clouds and their own data centers. During Red Hat’s second fiscal quarter, the company’s subscription income from that particular category saw a hike of 31% to $196 million as compared to the 8% income hike from infrastructure software.
Contrastingly, IBM has struggled to remain afloat in this era of public cloud. Although the 2013 acquisition of SoftLayer gave the company a public cloud grip, the majority of the growth in public cloud computing came from the three big U.S. providers, including Google Cloud and the above-mentioned companies.
Jim Whitehurst, CEO of Red Hat will persist to administer the company which is gearing up to become a valuable part of the IBM Hybrid Cloud division as a separate unit.
With the pact, Red Hat and IBM are clearly aiming for major firms that have struggled to keep themselves afloat with younger contenders built around more spry IT strategies. As Microsoft and AWS haven’t faced trouble inviting these companies, Red Hat and IBM will try and argue that they will propound the most “amenable” approach to the hybrid cloud considering Red Hat’s open-source heirloom and their assurance to help such companies explore multiple public cloud options.
However, the Red Hat shareholders are yet to approve the deal. Given the premium over its most recent closing price, it is hard to imagine any sort of protests from the company’s shareholders. As a subject to regulatory review, the deal is expected to be sealed in the second half of 2019.