Big Blue reportedly gains European approval to acquire open source cloud giant Red Hat
IBM has reportedly gained ‘unconditional approval’ from the European Union to its purchase Red Hat Inc for a cool $34bn (£26.5bn).
IBM had announced last October that it was acquiring Red Hat to reinvigorate its cloud growth in a deal that it believes will “completely change the cloud landscape” and will allow it to become the “world’s #1 hybrid cloud provider.”
The $34bn purchase of Red Hat is IBM’s largest acquisition to date, and it is expect to help chairman, president and chief executive officer Ginni Rometty’s lengthy efforts to grow IBM’s subscription-based software offerings, in the face of slowing software sales and weakening demand for mainframes.
Red Hat deal
But a deal of this size was always going to attract scrutiny from regulators around the world, and now people familiar with the matter told Reuters that IBM is set to gain unconditional EU approval for the acquisition.
It should be noted that the European Commission is only scheduled to decide on the deal by 27 June. IBM has reportedly declined to comment on the Reuters report.
The deal has already been given the green light by US regulators last month, without concessions.
The importance of the deal for Big Blue should not be underestimated.
For the last six years CEO Rometty has been carrying out a shrinking “by design” program, as part of IBM’s refocusing on the cloud, mobile, analytics and cybersecurity, as hardware earnings continue to fall.
“The acquisition of Red Hat is a game-changer,” Rometty said last year. “It changes everything about the cloud market. IBM will become the world’s #1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.”
It is clear that Rometty is targetting the cloud to act as a growth driver, as this is an area that IBM is lagging behind rivals such as Amazon, Microsoft, and Google.
Red Hat’s business model appealed to IBM as rather than selling software outright, it charges fees to its corporate customers for custom features, maintenance and technical support.
This acquisition should therefore give IBM a boost in the subscription revenue business model.
But Red Hat, which was founded back in 1993, is also an open source giant as well and it specialises in Linux operating systems, an alternative to the proprietary operating systems and software made by Microsoft.
But it should be noted that IBM is not the only tech vendor making an open source move of late.
Microsoft has acquired open source software platform GitHub for $7.5 billion for example.
And Dell has also moved into the software and cloud space with its acquisition of storage giant EMC for $67bn a couple of years ago.
That deal gave Dell a 82 percent stake in virtualisation software giant VMware.
And the tech industry has seen more recent big value deals such as Broadcom seeking to acquire software veteran CA for nearly $19bn.