IBM to acquire Red Hat in deal valued at $34 billion

Business


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.

Open source has been the biggest theme in technology this year. Prior to IBM’s purchase of Red Hat, two of the biggest tech deals of the year were Microsoft’s $7.5 billion purchase of GitHub, a code-sharing service, and Salesforce’s $6.5 billion acquisition of MuleSoft, whose technology stitches together disparate software applications, data and devices. Earlier this month, big-data rivals Cloudera and Hortonworks agreed to merge in a $5.2 billion deal.

Both Rometty and Whitehurst, in comments to CNBC, agreed that Microsoft’s purchase of GitHub was “irrelevant” to IBM and Red Hat’s decision to enter into a deal.

While Red Hat has talked for years about potentially selling itself to other companies, including Google, never has anything gotten nearly as serious as the negotiations with IBM, according to people familiar with the matter.

“We were not looking to do something,” Whitehurst told CNBC.

IBM reported lighter-than-expected revenue in its most recent earnings update, and its revenues shrank from the previous year after three quarters of growth. Prior to that brief growth period, the company’s revenues had been slowly declining for about five years.

The company has been working to catch up to Amazon and Microsoft in the cloud infrastructure business.

Cloud is one of IBM’s four key strategic imperatives, or growth drivers — the others are social, mobile and analytics — and in the quarter, IBM announced cloud deals with Economical Insurance, ExxonMobil and Novis.

IBM and Red Hat said 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.

–CNBC’s
David Faber
,
Ari Levy
and
Jordan Novet
contributed to this report.



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