IBM Corp. is the latest company in the computer technology sphere to want to expand its scope of relevance, announcing on Sunday, October 29, that it will purchase Red Hat Inc. for a sum of $34 billion. Red Hat is famously associated with Linux, an alternative operating system to Microsoft that the company offers paid support services for. With this acquisition, IBM is attempting to gain a firm foothold in the software industry, especially when it comes to products and services with a high margin of profitability.
As part of the deal, IBM will be paying cash of $190 per share for Red Hat shares, showing the urgency with which the former wishes to close the deal and realize the goldmine that it sees Red Hat as being. As part of the deal, however, analysts have pointed out that it would be crucial for IBM to keep in place the open-source model of Red Hat Linux.
Although IBM’s shares have lost a more than 30% value in the last five years in comparison to Red Hat shares that have grown 170% in worth, Ginni Rometty, Chief Executive Officer at IBM has categorically stated that this was not the main point of consideration for this acquisition, saying, “This acquisition we are clearly doing for growth synergies. This is not about cost synergies at all.” To this point, IBM has been experiencing a slowing down of business for its mainframe servers as cloud services seems to be where the money is.