IBM wraps up $34B deal to buy Red Hat

cloud
IBM closes out its $34 billion deal to buy Red Hat, but maintains that Red Hat will remain independent. (Getty Images)

IBM announced today that it has closed its $34 billion deal to buy Red Hat, which means the proverbial heavy lifting has officially begun.

The deal, which was first announced in October, is the largest in IBM's history, and represents the high-water mark for IBM CEO and President Ginni Rometty's tenure. Rometty and her executive team are now tasked with developing a roadmap to compete with the likes of VMware on hybrid cloud deployments for enterprises.

"Businesses are starting the next chapter of their digital reinventions, modernizing infrastructure and moving mission-critical workloads across private clouds and multiple clouds from multiple vendors," Rometty said in a statement. "They need open, flexible technology to manage these hybrid multicloud environments. And, they need partners they can trust to manage and secure these systems. IBM and Red Hat are uniquely suited to meet these needs. As the leading hybrid cloud provider, we will help clients forge the technology foundations of their business for decades to come."

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IBM has lagged behind Amazon Web Services, Microsoft Azure and Google in the cloud space, but it does have artificial intelligence and machine learning technologies that Red Hat doesn't have. With Red Hat in hand, IBM has a larger presence in both the hybrid and private cloud.

Red Hat's Kubernetes portfolio was key to the deal. Red Hat bought CoreOS, which includes its Kubernetes-based Tectonic orchestration system, for $250 million last year to improve its automation capabilities in Kubernetes.

For now, IBM/Red Hat looks to be a bigger threat to Microsoft due to Amazon Web Services' commanding lead in the cloud market, and because Microsoft is the dominant hybrid cloud compute company, but any impact that IBM/Red Hat will have on Microsoft will be years in the making.

IBM has pledged not to meddle with Red Hat's status as an open source community. Former Red Hat CEO Jim Whitehurst and his executive team will continue to lead Red Hat, but Whitehurst will report to Rometty.

IBM is keeping Red Hat's headquarters in Raleigh, North Carolina, and its facilities, brands and practices. Red Hat will operate as a distinct unit within IBM and will be reported as part of IBM's Cloud and Cognitive Software segment.

During a conference call Tuesday morning, Red Hat's Paul Cormier, president, products and technologies, said he was looking forward to Red Hat becoming more of a global company under the auspices of IBM. On the same call, IBM's Arvind Krishna, senior vice president for cloud and cognitive software, said there was lots of runway left across hybrid cloud environments, and that Red Hat and IBM can offer a common platform. Red Hat and IBM will maintain their current cultures and Red Hat's sales teams won't sell IBM's portfolio, but will continue to do business with IBM's competitors.

"Red Hat will remain Red Hat," Krishna said.

RELATED: Telecom Industry Voices—Raynovich: Inside IBM's desperation Red Hat move

Scott Raynovich, the founder and chief analyst of Futuriom, panned the Red Hat/IBM deal last year in a FierceTelecom column. Among other critiques, Raynovich wrote that the Red Hat deal was a desperation move by Rometty to try to keep her job. 

“IBM has an opportunity to make inroads in multicloud management with Red Hat but it will have to avoid the cultural pitfalls of ‘bluewashing’ that has endangered many if its previous acquisitions," Raynovich said in an email Tuesday morning to FierceTelecom. "Somehow it needs to give Red Hat more independence.”

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