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Red Hat execs address ‘elephant in the room’ at town hall meeting after IBM acquisition

IBM is acquiring Red Hat. Here’s a look at the Raleigh-based company’s history.

IBM will acquire Raleigh-based software maker Red Hat in a $34 billion deal, the two companies announced on Oct. 28, 2018. Here's a look at Red Hat's rise from a small Triangle company to a worldwide software innovator.
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IBM will acquire Raleigh-based software maker Red Hat in a $34 billion deal, the two companies announced on Oct. 28, 2018. Here's a look at Red Hat's rise from a small Triangle company to a worldwide software innovator.

When Red Hat executives gathered their workforce at the Duke Performing Arts Center in downtown Raleigh on Oct. 29, they had a lot of uncertainty to settle.

A little more than 12 hours earlier, the company — which sells open-source software and services that have become increasingly popular with companies moving their businesses into the cloud — announced it had been bought by legacy tech giant IBM for $34 billion to better compete with Amazon and Google’s cloud-computing services.

The news was met by waves of posts on online message boards by employees and customers who shared their concerns about the potential clashing of IBM’s old school and Red Hat’s new school cultures. On Reddit.com, a popular social media website, employees and software users gathered to cast eulogies to the company’s open-software ethos, share job-hunting tips and worry about future layoffs.

Reporters were not allowed into the town hall meeting, but a transcript of the meeting submitted to the Securities and Exchange Commission, shows that Red Hat CEO Jim Whitehurst addressed those concerns straight away.

“Let’s start up front,” Red Hat CEO Jim Whitehurst told employees. “If you are like me ... you’re probably in some stage of absolute shock, fear, scared and I get that. And there’s a lot of emotion associated with this, certainly for me and for, I know, many, many, many of you.”

And with his new boss, IBM CEO Ginni Rometty, looking on Whitehurst promised his employees that “red will stay red.” Rometty was symbolically wearing purple, the combination of IBM’s iconic blue scheme and Red Hat’s primary red.

“I love the culture that we’ve all built together.” Whitehurst said. “(A)nd the reason I got so excited about this is Ginni gets that, right? She totally completely gets that.

“I want to emphasize this again. We will operate as a distinct unit. And I want to be clear, that’s not just for culture. For our customers, we have to be the neutral, 100-percent open-source platform that we’ve always been.”

The town hall was chance for employees, many of which were decked out in red fedoras, to ask their bosses about the deal. Most centered on whether IBM could be trusted to let Red Hat be distinct.

102918-RED HAT-TEL-06.JPG
Red Hat employees from left, Landon LaSmith, Chris Chase, Steven Huels and Prasanth Anbalagan walk back to their Raleigh headquarters after a meeting at the Duke Energy Center for the Performing Arts Monday, Oct. 29, 2018. Some employees at the meeting were worried about a culture clash between the two companies. Travis Long tlong@newsobserver.com@newsobserver.com

“So we are hearing a lot of stories inside Red Hat from people who are former IBMers — especially those who were acquired by IBM, and so (the) elephant in the room, we’ll ask it,” one of the submitted questions said. Those employees “say that at the time they were acquired, they were told a lot of the same things and it didn’t really pan out. What expectations are reasonable for us to have and are there things that Red Hatters can do to make a difference in how all this plays out?”

Whitehurst reiterated that Red Hat would keep its own brand and its own offices. He noted that there was a real reason to keep the companies separate and that Red Hat employees aren’t going to be asked to sell IBM products.

“So unlike other acquisitions, we’ll keep it separate for a few years and think about how we integrate it. We have to stay separate because otherwise the value goes away. If we lose our Switzerland status, that’s a lot of what our value is.”

And when it comes to Red Hat’s own culture being disrupted, it isn’t IBM that the company should worry about, Whitehurst said. Rather, it’s biggest challenge is its own growth, he said.

Red Hat has more than 2,000 employees at its headquarters tower in downtown Raleigh, making it one of the city’s largest and fastest-growing employers. Worldwide, the company had about 12,600 employees as of August 2018.

“If I worry about our culture problem as part of this, (it’s) that ... we grow our associates at 20-ish percent a year and in our culture that’s hard,” said Whitehurst, who reassured employees he wouldn’t be leaving the company. “My biggest concern here is we’re now going to be growing a lot faster than 20 percent. ... And so our biggest challenge will be continuing to bring people into our culture and to continue to make people passionate about what we do.”

Whitehurst also addressed concerns about culture and layoffs in a separate message to employees that also was filed with the SEC. In it, he said Red Hat management would be responsible for decisions about its facilities, amenities and employees working remotely. IBM made headlines last year when it stopped allowing employees to work from home.

He also said there were “no planned layoffs” associated with the merger, adding “this is about growth.”

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