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IBM officially closes $34 billion deal to buy Red Hat

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.

IBM’s $34 billion purchase of Red Hat has officially closed, the two companies announced Tuesday.

Last October, IBM said it would buy the Raleigh-based software maker for $34 billion, or $190 per share, making Red Hat the biggest acquisition that IBM has made in its 107-year history and the world’s second-largest technology deal ever, according to Bloomberg.

The deal will make Red Hat part of IBM’s Cloud division, the two companies said when the deal was announced last year. Red Hat CEO Jim Whitehurst will become part of IBM’s senior management team and will report to IBM CEO Ginni Rometty.

Rometty has said previously that the deal is crucial to stay competitive in the hybrid cloud software landscape, where IBM is currently competing with tech giants, such as Microsoft, Google and Amazon.

The hybrid cloud — where companies use a mix of on-site, private and third-party cloud services, such as Amazon’s AWS and Microsoft’s Azure — is an emerging $1 trillion opportunity that the companies want to be prepared for, Rometty noted last year.

The two companies have stressed that Red Hat will remain largely independent as part of the deal, but many in the Raleigh area have worried about a potential culture clash between IBM and the open-source ethos of Red Hat.

At the unveiling of a new Red Hat logo in May, Whitehurst stressed that Red Hat was still going to be operating in an independent manner. At that time, the company was trading in its logo from the late 1990s for a new, sleeker version.

“We were in the process of doing this (logo change) when the IBM merger came up, so this is certainly demonstrating that it is business as usual,” Whitehurst told the N&O. “We did this independently — we showed it to them but we didn’t make any changes — and they were supportive of it. ... If it made sense before the deal, then it makes sense after because we are independent.”

During a conference call on Tuesday, Arvind Krishna, IBM’s senior vice president of cloud and cognitive software, said Red Hat’s sales team would remain separate. It’s important, he added, for IBM to remain neutral to protect the ecosystem of developers it has created and to maintain relationships with customers.

“Red Hat is going to be an independent sales team,” he said. “They make decisions on pricing and who they work with.”

Krishna — who was joined by Paul Cormier, Red Hat’s head of products and technologies — said Red Hat and IBM had about 5% of overlap in some of its products, but he added that wasn’t significant because many customers prefer using both in different situations.

“Those aren’t really even overlaps in my view,” he said. “Many of the clients ... actually use both, which means it’s not really an overlap it’s different use cases. We have to maintain both sets of products going forward because there are a lot of clients that are dependent on that.”

IBM reiterated that it will maintain Red Hat’s headquarters office in downtown Raleigh.

Red Hat has more than 2,000 employees at its tower in downtown, making it one of the city’s largest employers. The company has been downtown since 2013, when it moved from N.C. State University’s Centennial Campus, bringing around 600 employees at the time. Worldwide, the company had approximately 12,600 employees as of August 2018.

IBM also has a large office in Research Triangle Park, which Krishna noted was full and couldn’t take on relocated employees even if they had wanted to.

In May, the Department of Justice gave the go-ahead to IBM’s $34 billion takeover of Raleigh-based Red Hat, The News & Observer reported.

IBM said in its filing then that the Justice Department did not find any anti-trust violations that needed to be resolved.

This story was produced with financial support from a coalition of partners led by Innovate Raleigh as part of an independent journalism fellowship program. The N&O maintains full editorial control of their work. Learn more at bit.ly/innovateNandO

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