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IBM acquires Red Hat and made its largest acquisition deal ever and the third biggest in the history of the US tech.

The world’s leading provider of open source cloud software, IBM announced on Sunday, that the company is buying Red Hat Inc. With this acquisition, IBM becomes #1 hybrid cloud provider with a $1 trillion growth market.

Red Hat, a leading corporate Linux company offers custom features, maintenance, and technical support to its corporate customers, offering IBM a profitable source of subscription revenue.

This acquisition we are clearly doing for growth synergies. This is not about cost synergies at all – Ginni Rometty, CEO at IBM

IBM has made acquisitions in past. It has acquired Softlayer, cloud infrastructure provider in 2013 for $2 billion; and Cognos, Canadian business software maker in 2008 for $5 billion. But this is huge as IBM has agreed to pay $190.00 per share in cash, which will make the total enterprise value worth $34 BIllion.

Why IBM acquired Red Hat?

In the past 5 years, IBM shares have lost almost a third of their value, whereas Red Hat are gone up 170% in the same period. Just like any other technology company, IBM is making deals to gain scale and ward off competition. This acquisition will give IBM hope to catch up with Amazon.com Inc, Alphabet Inc and Microsoft.

To pay for this deal, IBM plans to suspend its share repurchase program in 2020 and 2021. This deal is excepted to close in the second half of 2019.

This acquisition is massive not only for the two companies but also the Linux Ecosystem. Red Hat has been the second most luxuriant contributor to the Linux Kernel and IBM has also been a loyal contributor to several Linux-related projects.

Conclusion

It is noteworthy that Red Hat would continue to be led by its CEO, Jim Whitehurst, and its current management team. IBM intends to maintain Red Hat’s headquarters, facilities, and brands.

Even though IBM and Red Hat said that this deal would enable businesses to do even more work in the cloud. It would be interesting to see what impacts will this acquisition have on other tech companies and the Linux ecosystem.

What are your views on this acquisition?

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