IBM to Buy Software Maker Red Hat for About $34 Billion

IBM is seen at the Mobile World Congress in Barcelona Spain

IBM said Sunday it has reached a deal to buy open source software company Red Hat for $34 billion, among the biggest tech mergers in history which the computing giant said would enhance its cloud offerings.

A logo of IBM is seen at the Mobile World Congress in Barcelona, Spain February 28, 2018.

The 107-year-old USA company will pay Red Hat's shareholders a 62pc premium for their shares in a bid to accelerate its growth into the emerging $1trillion growth market for cloud-based computing systems.

IBM will acquire all of the issued and outstanding common shares of Red Hat for $190.00 per share in cash, representing a total enterprise value of approximately $34 billion.

Red Hat has over 12,000 workers worldwide. This is the next chapter of the cloud.

Though not exactly the oldest, Red Hat is indeed one of the pioneers in the Linux and open source world. It sells features and support on a subscription basis to its corporate customers. Microsoft this year acquired open source software platform GitHub for $7.5 billion; chip maker Broadcom Inc agreed to acquire software maker CA Inc for almost $19 billion; and Adobe Inc agreed to acquire marketing software maker Marketo for $5 billion.

Under the deal, Red Hat will be incorporated into IBM's Hybrid Cloud division. It earned its distinction for being one of the first companies to make a living from open source software the way it was meant to be, by offering services in relation to operating and maintaining Linux systems, especially on the business side.

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The deal remains subject to Red Hat shareholder approval as well as regulatory approvals. Red Hat meanwhile reported its earnings back in September which were also disappointing and its share price has dropped 19% since then. It has faced years of revenue declines, as it transitions its legacy computer maker business into new technology products and services.

IBM will continue to grow its dividend and neither company will cut jobs after the deal, Rometty said.

Microsoft completed its $7.5 billion acquisition of open source software company GitHub just two days ago.

Other big technology companies have also recently sought to reinvent themselves through acquisitions.

"Open source is the default choice for modern IT solutions, and I'm incredibly proud of the role Red Hat has played in making that a reality in the enterprise", said Jim Whitehurst, President and CEO, Red Hat. Raleigh-based Red Hat will remain a "distinct unit" within IBM, CEO Jim Whitehurst told employees.

In 2015, International Business Machines (IBM) announced that it would move an expansive network of law enforcement data to the cloud for use by law enforcement agencies across North America.

With the deal, IBM and Red Hat are clearly setting their sights on major enterprise companies that have struggled to keep up with younger challengers built around more nimble IT strategies.

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