IBM’s $34B Red Hat deal risky bid to boost cloud

IBM’s plan to buy Red Hat is both the biggest acquisition in IBM’s century-long history and a risky effort to position itself as a major player in cloud computing.

The $34-billion US stock deal translates to $190 per Red Hat share — a 63 per cent premium to the closing price Friday for the Raleigh, North Carolina, company. Red Hat Inc.’s stock soared about 45 per cent in trading Monday.

The path for revitalization for IBM may be found in cloud technology, a driving force behind the blockbuster deal for Red Hat over the weekend.

“It’s a big bet, but ultimately they’re in a situation where they needed to make a significant acquisition to move them potentially forward,” Wedbush analyst Daniel Ives said.

Cloud computing, in which services are delivered over the internet from remote computers, accounted for nearly a quarter of IBM’s total revenue over the past year. But the company has been overshadowed by top cloud rivals Amazon, Microsoft and Google in competing to sell its internet-based computing services to businesses.

“This is about resetting the cloud landscape,” IBM Chairman and CEO Virginia Rometty said Monday in a conference call.

The hybrid cloud — when companies use a mix of on-site, private and third-party public services — is an emerging $1-trillion US opportunity that the companies want to be prepared for, Rometty said.

Ives said there’s still plenty of room for growth as financial services, retailers and industrial firms increasingly migrate their workloads into the cloud.

IBM’s Red Hat acquisition follows Microsoft’s recently completed $7.5-billion purchase of computer coding hangout GitHub. Both deals will allow the larger companies to tap into a broader community of opensource software developers.