According to the statement, IBM will pay cash to buy all shares of Red Hat at $190 each. Shares in Red Hat closed at $116.68 on Friday before the deal was announced.
Red Hat was incorporated 25 years ago as a distributor of a particular variant of Linux – an open-source operating system that is commonly used in server computers that power company data centers. Today, the company is known for distributing and supporting Red Hat Enterprise Linux, as well as other technologies commonly used in data centers. It went public in 1999, earned $259 million on revenue of $2.92 billion in its last fiscal year. Its revenue grew 21% between the 2017 and 2018 fiscal years.
In its most recent earnings update, IBM reported less than expected revenue, and its revenues shrunk from the previous year after three quarters of growth. The company’s revenue has been slowly declining for about five years, as it is struggling to catch up to Amazon and Microsoft in the cloud infrastructure business. The cloud is one of IBM’s four key strategic growth drivers — the other three being social, mobile and analytics. In this quarter, IBM has also announced cloud deals with Economical Insurance, ExxonMobil and Novis.
IBM and Red Hat said that the acquisition deal would enable businesses to do even more work in the cloud, keeping their apps and data portable and secure, no matter which cloud or hybrid technologies they adopt. Goldman Sachs, J.P. Morgan, and Lazard advised IBM on the Red Hat deal. Morgan Stanley and Guggenheim advised Red Hat. Following the acquisition, Red Hat will become a unit of IBM’s Hybrid Cloud division, with Red Hat CEO Jim Whitehurst joining IBM’s senior management, reporting directly to IBM CEO Ginni Rometty.