In a $34 billion deal, IBM bought software company Red Hat, an open source specialist that gives away the source code for its core products, meaning that anyone can download them for free.
While it might seem strange to spend billions to acquire an open source software company, in actuality, companies pay Red Hat to support their products, which allows Red Hat to rake in around $3 billion in revenue each year.
“I don’t think the world realizes that Linux is the number one platform,” IBM chief Ginni Rometty said on CNBC’s “Squawk Box.” “This is about lifting all of IBM. For us, it’s all about resetting the cloud landscape” to become the “number one hybrid cloud provider.”
Although IBM has struggled in recent years to transform itself into a cloud computing company, it has been working on competing with Amazon and Microsoft in the cloud infrastructure business. Since acquiring the open source specialist, the company will pay about $33 billion cash for all shares of Red Hat at $190 each.
At the same time, IBM will work on maintaining its “leverage profile” by pausing its share repurchases in 2020 and 2021, a move that Rometty describes as “being prudent about our debt level.”
By: Maytinee Kramer