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IBM to acquire Red Hat: One of the greatest IT deals ever

IBM acquires Red Hat

The deal is expected to close in the second half of 2019.

IBM, an American IT MNC, recently announced to acquire Red Hat, a major distributor of open-source software and technology, in a deal valued around $34 billion. Reportedly, IBM will pay cash to buy all shares in Red Hat at $190 each.

Red Hat to be IBM’s Hybrid Cloud division

According to reports, Red Hat will become a unit of IBM’s Hybrid Cloud division, while, James M. Whitehurst, CEO of Red Hat will join IBM’s senior management team and report to CEO Ginni Rometty. In this deal, Goldman Sachs, J.P. Morgan, and Lazard are acting as advisers to IBM while Morgan Stanley and Guggenheim are advisers for Red Hat.

Jamie Dimon, CEO, JPMorgan, stated, “Knowing first-hand how important open, hybrid cloud technologies are to helping businesses unlock value, we see the power of bringing these two companies together, and are honored to advise IBM and commit financing for this transaction.”

US’s one of the biggest IT deals ever

The acquisition is by far IBM’s greatest deal ever, and the third-biggest in the history of US tech. Excluding the AOL-Time Warner merger, the only larger deals were the $67 billion merger between Dell and EMC in 2016 and JDS Uniphase’s $41 billion acquisition of optical-component supplier SDL in 2000, just as the dot-com bubble was bursting.

Ginni Rometty, CEO, IBM said that the deal should not be interpreted as part of any plan for her to transition out of her position as CEO at IBM as she stated, “I’m still young and I’m not going anywhere.”

Acquisition for mutual growth

IBM and Red Hat reported that the deal would enable businesses to do even more work in the cloud, keeping their apps and data portable and secure, no matter which cloud or hybrid technologies they adopt.

Rometty, IBM, stated in an interview, “This acquisition we are clearly doing for growth synergies. This is not about cost synergies at all.”

Barclays analysts stated in a research note, “This deal represents the culmination of IBM’s existing partnership with Red Hat, and, in our view, allows IBM to gain a highly strategic asset to advance its hybrid cloud initiatives.”

Reportedly, IBM will pause share repurchases in 2020 and 2021, but won’t touch its dividend. The pause is a cautionary measure as the company plans on returning to its normal leverage ratio in about two years.