IBM moves into the cloud with €29bn purchase

IBM moves into the cloud with €29bn purchase

IBM’s €29bn purchase of Red Hat, the world’s second-largest technology deal ever, is aimed at catapulting the company into the ranks of the top cloud software competitors.

The cash deal, IBM’s largest, boosts the company’s credentials overnight in the fast-growing and lucrative cloud market, and gives it a much-needed potential for real revenue growth.

The 107-year-old computer-services giant, once synonymous with mainframe computing, has been slow to adopt cloud-related technologies and has had to play catch-up to market leaders Amazon and Microsoft in offering computing and other software and services over the internet. 

The $34bn price drove Red Hat shares in the small but fast-growing software maker about 50% higher, reflecting the huge premium IBM is paying to ward off any potential challenger bids.

IBM shares dipped, and analysts said that pointed to some remaining nerves among investors over the chances of the deal closing.

At 10 times 2019 projected sales, there are some fears IBM has overpaid for the deal. 

IBM has seen revenue decline by almost a quarter since Ginni Rometty, 61, took the CEO role in 2012, as she attempts to steer IBM toward more modern businesses.

Ms Rometty told CNBC she felt the deal was done at the right price. One brokerage, Stifel, raised the prospect of a competing offer.

“Google, Amazon, and Microsoft (and potentially Oracle) have the strategic motivations and financial resources to consummate such a transaction and would not be surprised if we were to see one of them make a competing bid,” Stifel said.

Red Hat has been investing heavily in tech tools such as so-called “containers,” which make it easier for businesses to split up their computing work among a mix of data centres. 

But the combined entity will also sell software that runs on its customers’ own hardware and other clouds. 

That will put it in direct competition with firms like Microsoft.

Cloud providers such as Amazon often offer a version of the Linux operating system for free or at little cost. 

But that version of Linux is available only on Amazon, and businesses running software on another cloud have to ensure it works with a different version of Linux.

Reuters and Bloomberg

More on this topic

Incredible features with fantastic image qualityIncredible features with fantastic image quality

Pixel 4 is a joy to use, but battery life lets it downPixel 4 is a joy to use, but battery life lets it down

Snapchat adds age-transforming slider featureSnapchat adds age-transforming slider feature

Here's what to expect from Google Stadia - gaming's new streaming platformHere's what to expect from Google Stadia - gaming's new streaming platform

More in this Section

Manager at Cork bank begins action aimed at preventing termination of her employmentManager at Cork bank begins action aimed at preventing termination of her employment

Cork JCD  building to become Ireland's greenest building Cork JCD building to become Ireland's greenest building

British Airways flights delayed by ‘technical issue’British Airways flights delayed by ‘technical issue’

Google bans ads targeting political affiliationGoogle bans ads targeting political affiliation


Move over quinoa.Everything you need to know about fonio, the ancient grain we’ll all be eating in 2020

The former heptathlete and all-round super woman chats to Lauren Taylor about how to stay fit in pregnancy and body confidence after a baby.Dame Jessica Ennis-Hill: ‘There’s still a lot of stigma attached to exercising pregnant’

Behaving aggressively is a stage many toddlers go through. The author of The Wonder Weeks explains how parents should deal with kids who kick & bite.Ask an expert: How can I stop my toddler kicking and biting?

It came as quite a surprise to learn that I had been writing my Weekend column in the Irish Examiner for 21 years — how the years have flown by and how the food scene has changed in Ireland over those two decades.A letter from Darina Allen: How the years have flown and the food has changed

More From The Irish Examiner