As trading began, IBM rallied a bit, cutting its loss to 3 percent.
Red Hat will operate as a distinct unit within IBM's Hybrid Cloud team.
"Imagine Red Hat with the ability to invest even more and faster to accelerate open source innovation in emerging areas". "We believe the significance and timing of this cloud deal is noteworthy as IBM has finally decided now is the time to make its poker move". It also acquired Cognos in 2008 for $5bn and the Weather Channel's data assets for $2bn in 2015.
In its early days, the company enjoyed the advantage of being used extensively by the United States military as the Department of Defence has certified its Red Hat Enterprise Linux product for use. "It changes everything about the cloud market", said IBM CEO Ginni Rometty in a statement on Sunday evening South African time.
"Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs", she said in the press release.
"The next 80% percent is about unlocking real business value and driving growth". This is the next chapter of the Cloud.
"The combination of IBM and Red Hat, it's a game changer", IBM CEO Ginni Rometty said during the analyst call.
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Red Hat has expanded from a developer of Linux-based business software to being involved in most places you might find B2B open source software, including the cloud and telecoms.
Red Hat CEO Jim Whitehurst will continue to lead the company and will join IBM's senior management team, reporting to Rometty.
"IBM and Red Hat also will continue to build and enhance Red Hat partnerships, including those with major cloud providers, such as Amazon Web Services, Microsoft Azure, Google Cloud, Alibaba and more, in addition to the IBM Cloud".
"We are going to both compete and partner with those other clouds", Rometty said.
The two companies Sunday announced the agreement under which IBM will acquire all issued and outstanding common shares of Red Hat for $190.00 per share, a significant premium above Friday's $116.68 per share close.
IBM intends to maintain Red Hat's headquarters, facilities, brands and practices.
Cloud-based phone systems provider RingCentral (RNG), process- optimization software company Aspen Technology (AZPN) and e-signature leader DocuSign (DOCU) round off Auty's list of potential strategic takeovers. Red Hat Inc.'s stock soared nearly 50 percent in early trading. Microsoft continued its transition from closed software box-shifter with the recent $7.5 billion acquisition of code sharing platform GitHub.
For its fiscal 2018, ended February 28, Red Hat reported revenue of $2.92 billion, up 21 percent from fiscal 2017, and net income of $258.8 million for the year. The statement goes on to predict that the deal will accelerate IBM's revenue growth, margin and free cash flow within one year of closing.