Open source software provider Red Hat has accepted a takeover bid from IBM worth about USD 34 billion in cash, or USD 190.0 per share. IBM CEO Ginni Rometty called the deal a “game-changer,” transforming the company into the world’s number one hybrid cloud provider. Rommetty said that with Red Hat, IBM will be able to provide a full value open cloud service to help companies continue their move to the a hybrid multi-cloud, with expertise in key technologies such as Linux, containers, Kubernetes, multi-cloud and cloud management, and automation. IBM has been working with Red Hat for 20 years.
At signing, IBM said it had enough cash, credit and bridge lines to secure financing and that it will close the transaction through a combination of cash and debt, sometime in the second half of the year. The acquisition is expected to accretive to revenue, gross margin and free cash flow within 12 months of closing. It also will support a solid and growing dividend.
Red Hat will operate as a distinct unit within IBM’s Hybrid Cloud team. Red Hat CEO Jim Whitehurst will join IBM's senior management team and report to Rometty. IBM intends to maintain Red Hat's headquarters, facilities, brands and practices. Whitehurst said the unit will preserve its “unique culture” and commitment to open source innovation via efforts as Patent Promise, GPL Cooperation Commitment, the Open Invention Network and the LOT Network. IBM said it will keep Red Hat's open governance, open source contributions, participation in the open source community and development model, as well as its developer ecosystem. The two companies will continue to build and enhance Red Hat partnerships, including those with major cloud providers, such as Amazon Web Services, Microsoft Azure, Google Cloud, and Alibaba, in addition to the IBM Cloud. Red Hat will meanwhile benefit from IBM's hybrid cloud and enterprise IT scale.
IBM noted it will continue to maintain a “disciplined” financial policy invest in grade credit ratings. Specifically, the company will target a leverage profile consistent with a mid to high single A credit rating. Under this line of thought, it will suspend its share buyback programme in 2020 and 2021.
The transaction has been approved by the boards of directors of both IBM and Red Hat though it is still subject to Red Hat shareholder approval. It also is subject to regulatory approvals and other customary closing conditions.
