IBM to acquire Red Hat for $34 billion

$34 billion. 

That’s how much IBM has offered to pay, in cash, to acquire the open source software company Red Hat. 

Red Hat gives away its core product — the Red Hat Linux distribution — for free, but it makes money on support and cloud computing. And the latter is where IBM’s focus is at.

“The acquisition of Red Hat is a game changer. It changes everything about the cloud market. IBM will become the world’s #1 hybrid cloud provider,” said IBM Chairman, President and CEO Ginni Rometty. 

“Joining forces with IBM will provide us with a greater level of scale, resources and capabilities to accelerate the impact of open source as the basis for digital transformation and bring Red Hat to an even wider audience,” said Red Hat’s President and CEO Jim Whitehurst. 

“The acquisition of Red Hat is a game changer.”

The deal, announced on Sunday afternoon, has been approved by the boards of directors of both companies, and is subject to Red Hat shareholder approval as well as regulatory approvals. It’s IBM’s biggest acquisition ever, according to Reuters. IBM’s offer of $190 per share is a 60% premium over Red Hat’s current stock price, but as the New York Times notes, if you look at Red Hat’s free cash flow, it might actually be a steal for IBM. 

It’s been a good year for open source projects. IT behemoths, once fenced off in closed source gardens, have recently increasingly warmed up to the idea of sharing their code (some of it, at least) with everyone. In June this year, Microsoft acquired the open source code sharing site Github for $7.5 billion.