IBM and Red Hat announced on Monday IBM would acquire open source cloud software provider for a head-turning $34 billion in cash. For the tech world, its a marriage between scrappy, open-source outlier Red Hat and the ultimate mainstream computing stalwart, IBM. The financial sector, however, is going to take more convincing.
The relationship isn’t anything new. IBM and Red Hat have worked together for 20 years to advance Linux-based cloud systems.
“Today’s announcement is the evolution of our long-standing partnership,” said Ginni Rometty, IBM Chairman, President and Chief Executive Officer. “This includes our joint Hybrid Cloud collaboration announcement in May, a key precursor in our journey to this day.”
IBM's takeover of Red Hat is the biggest ever deal in software https://t.co/os0hpBA4XD
— The Economist (@TheEconomist) October 30, 2018
The plan is for Red Hat to remain its own stand alone entity within IBM’s Hybrid Cloud Team and maintain its open source roots.
But the price tag for the deal has the financial sector sharpening their pencils. According to Forbes, IBM is down 35 percent since 2012 and yet paid a 63 percent “premium over its close on October 26. While admitting Red Hat is in a profitable — and growing — sector Forbes contributor Peter Cohan says the deal fails the other three of the four “tests for successful acquisitions,” including integration, whether IBM will actually be better off with Red Hat in house, and the net value.
Besides, he adds, customers who were once attracted to Red Hat’s independence and open-source spirit could be turned off by its affiliation with Big Blue.
Time will tell whether the tech possibilities outweigh the financial risk IBM is taking with what one venture capitalist called a “…bet-the-company move by IBM.”
"This is a bet-the-company move by IBM," said one venture capitalist about the $33 billion acquisition of Red Hat https://t.co/yVjLVHAe6T
— The Wall Street Journal (@WSJ) October 29, 2018
Featured image: IBM