IBM To Buy Red Hat In $34B Deal, IT Stocks Surge

IBM Common Stock IBM announced it will purchase Red Hat Inc RHT's issued and outstanding common shares for $190 per share in cash.

The $34 billion deal — the culmination of a 20-year partnership — prompted a 51-percent pop in Red Hat, a 2.7-percent decline in IBM.

Why It’s Important

With the transaction, IBM expects to become the leading hybrid cloud provider poised to dominate a $1 trillion growth market. The integrated company will provide open-source IT solutions with security and portability across cloud platforms.

"Joining forces with IBM will provide us with a greater level of scale, resources and capabilities to accelerate the impact of open source as the basis for digital transformation and bring Red Hat to an even wider audience – all while preserving our unique culture and unwavering commitment to open source innovation,” Red Hat President and CEO Jim Whitehurst said in a press release.

Additionally, the business is expected to become free-cash-flow and gross-margin accretive within 12 months.

"The acquisition of Red Hat is a game-changer,” IBM President and CEO Ginni Rometty said in a press release. “It changes everything about the cloud market.”

Several tech peers also moved Monday morning:

• salesforce.com, inc. CRM rose 2.6 percent;
• Splunk Inc SPLK 5.5 percent;
• Workday Inc WDAY 2.8 percent;
• Akamai Technologies, Inc. AKAM 2 percent.

What’s Next

Red Hat will operate as an independent unit within IBM’s $19 billion Hybrid Cloud business. Whitehurst and the current Red Hat management team will continue to lead the unit.

The segment will continue to pursue partnerships with major cloud providers, including Amazon.com, Inc. AMZN Web Services, Microsoft Corporation MSFT Azure, Alphabet Inc. GOOGL’s Google Cloud and Alibaba Group Holding Ltd BABA.

The deal will close in the back half of 2019.

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