Red Hat to be acquired by IBM (IBM) for $190.00/share in cash, or approximately $34 bln
The acquisition of Red Hat reinforces IBM's high-value model. It will accelerate IBM's revenue growth, gross margin and free cash flow within 12 months of closing. It also will support a solid and growing dividend. The company will continue with a disciplined financial policy and is committed to maintaining strong investment grade credit ratings. The company will target a leverage profile consistent with a mid to high single A credit rating. The company intends to suspend its share repurchase program in 2020 and 2021. The company intends to close the transaction through a combination of cash and debt. The acquisition has been approved by the boards of directors of both IBM and Red Hat. It is expected to close in the latter half of 2019.
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HYBRID CLOUD
Rometty told Reuters on Sunday that the increasing use of cloud services from multiple providers was the driving force behind the deal along with the rise of the so-called hybrid cloud, in which companies run some of their software in their own data centers and other elements of it in data centers run by IBM, Amazon Web Services or Google Cloud, among others.
Red Hat has been investing heavily in tech tools such as so-called "containers," which make it easier for businesses to split up their computing work among a mix of data centers.
"They want choice and we are going to give it to them," Rometty said. "Multi-cloud is a fact of life."
In buying Red Hat, IBM will have assembled a cloud that includes physical servers, its own operating system and applications like human resources software.
But the combined entity will also sell software that runs on its customers own hardware and other clouds. That will put it in direct competition with firms like Microsoft, which has a similar mix of software and cloud services.
"We are going to both compete and partner with those other clouds," Rometty said. "The thing about IBM is, we've been around long enough to know this is a multi-cloud world."
Jim Whitehurst, the CEO of Red Hat, said the use of multiple clouds has been an advantage for Red Hat.
Cloud providers such as Amazon often offer a house-made version of the Linux operating system for free or at little cost. But that version of Linux is available only on Amazon, and if the business wants to run software on another cloud they would have to ensure it works with a different version of Linux there.
Red Hat offers a standard version of Linux that runs on commonly available clouds as well as a business's own data centers, and Whitehurst said Red Hat customers were increasingly running its operating system on public clouds.
"We are growing faster on the public clouds than the public clouds are growing," Whitehurst said in an interview. "Yeah, you pay us a little extra versus a free cloud offering, but you get the benefit of a standard operating environment."
