Software giant IBM has struck a deal with industry fellow Red Hat to acquire the firm for a total of $34bn (£26.5bn), including debt, the two businesses announced tonight.
The transaction marks IBM’s biggest acquisition to date, and the largest software acquisition ever conducted. The deal is said to be a game-changer for the firm, as it seeks to diversify its offerings and create a name for itself in the competitive hybrid cloud computing market. IBM was ranked fifth in terms of global cloud market share in June.
IBM will pay $190 per share in cash for Red Hat, which is at a 63 per cent premium to Red Hat’s closing price on Friday. While IBM’s shares have lost almost a third of their value in the past five years, Red Hat’s share price is up 170 per cent over the same period.
Founded in 1993, Red Hat specialises in creating subscription-based solutions for open-source operating system Linux.
IBM chief Ginni Rometty told Reuters tonight: “This acquisition we are clearly doing for growth synergies. This is not about cost synergies at all.”
The deal follows in the footsteps of several other tech giants buying up smaller companies in order to innovate in the space, including cloud competitor Microsoft which bought open-source platform Github for $7.5bn earlier this year.
IBM’s purchase of Red Hat is expected to close in the second half of 2019. IBM said it will close its share repurchase programme temporarily in 2020 and 2021 to help pay for the deal.
Red Hat will retain its branding, headquarters, facilities and practices. Additionally, it will continue to be led by current chief executive Jim Whitehurst and its leadership team.