Technology writers worldwide had their Sundays disrupted by the bombshell news that IBM and Red Hat have reached a definitive agreement through which IBM will acquire all of the issued and outstanding common shares of Red Hat for $190.00 per share in cash, for a total of value of approximately $34 billion. It’s a hefty price – a sixty per cent premium to Red Hat’s stock value, according to Bloomberg.
The two companies held a conference call Monday morning to discuss the deal, and address some very real concerns held by elements of their ecosystems.
“We believe that the acquisition of Red Hat for IBM is a game changer, and redefines everything about the cloud market,” said Arvind Krishna, Senior Vice President, IBM Hybrid Cloud. “The hybrid cloud is all about security, comfort and affordability. What we will do together here will have the same impact as bringing Linux into the cloud world.”
“When we started, sixteen years ago, Linux was a commodity play,” said Paul Cormier, President, Products and Technologies, Red Hat. “Over the last ten years, it has been the platform where most of the innovation in the enterprise has taken place, and so we have built a portfolio around Linux and open source tailored for the hybrid cloud architecture.
“Having said that we are still a relatively small company,” Cormier continued. “IBM will help us bring that strategy to 170 countries around the world, and give us more reach. IBM has been a great open source partner for us for more than 20 years, and we are very used to working together. It seems like a really natural fit for us in order to scale at the speed that we think we can.
“Our customers have shown us that we have the right focus, technologies and portfolio,” Cormier emphasized. “IBM will help us win much faster than we could on our own.”
IBM strongly emphasized that it is committed both to maintaining Red Hat’s independent status and its distinct culture, as well as Red Hat’s open governance, open source contributions, participation in the open source community and development model.
“We have been clear that Red Hat will remain a distinct unit for reasons that are both economically and culturally significant,” Krishna said. “The independence of their go-to-market is essential to maintain value. For very sound business reasons, we have to maintain the distinctions.”
“We just had an all-company meeting and Ginny [Rometty, IBM’s CEO] made it abundantly clear that in spending $34 billion they aren’t buying technology, they are buying culture, and it’s important to maintain that,” Cormier said.
For the same reason, the companies are also stressing that Red Hat’s many vendor partnerships, including those with hyperscale competitors of IBM’s cloud like Amazon Web Services, Microsoft Azure, Google Cloud and Alibaba will continue unchanged.
“We need to and will remain Switzerland, in terms of how we interact with our partners,” Cormier said. “I don’t think this will affect our public cloud deals, as I have heard good comments from my contacts there, Because we will run Red Hat as a separate identity within IBM, we aren’t going to do unnatural things, including with our own relationship with IBM as a partner.”
IBM’s relationships with other Linux distributors like SUSE Linux won’t be impacted either.
“We have to support distributions that have sufficient public demand, and we will keep doing that,” he said. Similarly he pledged that IBM would maintain its relationships with Red Hat competitors like VMware and Pivotal Cloud Foundry, for the same reason.
Cormier also stressed there will be no negative impact on Red Hat’s commitment to the open source community.
“None,” he responded, in answer to a question on the call. “I don’t intend to do anything different. We have talked about this extensively. For us, it’s business as usual. We have to do what’s right for the community.”
Cormier also stressed that IBM’s Kubernetes strategy will benefit from Red Hat.
“To do a commercial platform with Kubernetes, you need to be a commercial Linux vendor,” he said. “This gives us a big head start. I just can’t emphasize that enough.”
Last, and certainly not least, there will be no violence done to Red Hat’s channel ecosystem by the acquisition.
“We will keep the plans that they had in place for channel partners,” Krishna said. “If anything, we want to increase that going forward. There is nothing, we will do to decrease the enthusiasm that the channel has in taking this to market.”