IBM to acquire Red Hat for $34 billion

The world runs on Linux. Perhaps nobody understands that better than Red Hat, the organization behind Red Hat Enterprise Linux, Fedora, and CentOS, among other software. That’s how Red Hat rose to become the world’s leader in open source cloud software. However, that title may soon pass; IBM announced yesterday that it will buy Red Hat for US $34 billion.

It may seem odd for IBM to spend so much on Red Hat, considering that Red Hat distributes its various flavors of Linux for free under the GNU General Public License (GPL). Why would IBM pay $34 billion for a company that just gives away its software? Support. Companies that use Red Hat’s products can download them for free, but they are more than happy to pay Red Hat for support to the tune of over $3 billion last year.

IBM is buying Red Hat to become more competitive in the Cloud computing space where services like Amazon Web Services (AWS), Microsoft Azure, and Google Cloud reign supreme. With the acquisition, IBM looks to become the “world’s #1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their business,” according to IBM’s CEO Ginni Rometty. Jim Whitehurst, president and CEO of Red Hat, said that the acquisition will “provide [Red Hat] with a greater level of scale, resources, and capabilities to accelerate the impact of open source as the basis for digital transformation.”

IBM stated that the company will remain committed to Red Hat’s open source philosophy. To that end, Red Hat will operate as a distinct unit with IBM’s Hybrid Cloud team and will continue to be led by Jim Whitehurst and the current Red Hat management team. The acquisition will take place over a year after the deal is closed. IBM will purchase all outstanding and issued common stock at $190 per share, bringing the value of the deal to about $34 billion.

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