
IBM Closes Acquisition of Red Hat for $34B - voxadam
https://www.redhat.com/en/about/press-releases/ibm-closes-landmark-acquisition-red-hat-34-billion-defines-open-hybrid-cloud-future
======
tontonius
So IBM buys Red Hat for $34B, of which $20B are borrowed monies. The debt is
priced at 1.05 percentage points above Treasury yield rate [1] which would be
somewhere around 3.5% which puts interest on bond debt at ~$700m every year.

Now consider that Red Hat had a net income of $433m. Even if they reach $500
this year, Big Blue will still be $200m short, every year.

At the moment, IBM is trading down at -0.5% on an otherwise slight green
Nasdaq.

Just from these numbers we can conclude that IBM is seeing some pretty
significant synergies in the purchase that the market isn't.

[1] [https://www.barrons.com/articles/ibm-bond-sale-red-
hat-51557...](https://www.barrons.com/articles/ibm-bond-sale-red-
hat-51557347372)

~~~
coliveira
But IBM bought RH only because they believed that the company has growth
ahead. If it grows a little more than 1% a year (which should be easy) that
will be enough to break even. I think that was a smart move by IBM.

~~~
colinmhayes
You are forgetting about the opportunity cost of $34 billion.

~~~
coliveira
This is money used to buy large corporations, there are no other ways IBM
could easily find a loan to spend $34B.

------
raesene9
I don't doubt the committment of RH to Open source, but looking at IBMs rather
chequered history with regards to how they look to minimize costs, there must
be some concern that next time there's a bad set of results, executive
management will be looking for cost savings.

There are plenty of examples [https://www.thelayoff.com/international-
business-machines](https://www.thelayoff.com/international-business-machines)

specific example related to RH
[https://www.thelayoff.com/t/ZJ4vNfo](https://www.thelayoff.com/t/ZJ4vNfo)

TBH I hope I'm wrong and that IBM corporate leaves RH alone long term, but
that's not the general trend with acquisitions...

~~~
Mindwipe
As the very good comment above points out, IBM will need to cut costs very
significantly regardless, as they've paid so much the interest on the debt is
more than Red Hat makes.

~~~
dmix
They could easily make it up by cross selling to Red Hats consulting customers
and likewise for Red Hat to IBM customers. They shouldnt have to gut Red Hat
to extract additional value from an M&A. Plus other intangibles like access to
talent and access to new markets in the future for both sides.

Cost cutting isn’t the only business strategy. Although one that modern
(public shareholder driven) businesses became obsessed with since the 1980s.

------
roymurdock
IBM is all in on the multi cloud story since they missed the cloud memo, and
RH openshift is their key to allowing customers to lift and shift from AWS to
Azure to GCP etc.

Plus it's pretty clear they know how to do layoffs and that knowledge may be
applied to RH soon to boost profitability.

~~~
Zenst
So more an IP acquisition and IBM sure does know from decades of experience to
recognise some company that fills a gap that has usurped their own offerings
and acquired it.

You may well be right, indeed that was along the lines of my initial thought
about this and would explain the size and scale of investment. Then if RH
fails as they would currently to keep up those interest payments, then
accountants can just rub their hands and use that debt to offset profits down
the line.

Time will tell, certainly IBM has the kit and for years had its own dark fiber
internet backbone globally, so have been well placed for years to capture the
cloud market, yet failed to move on. Which for a company that saw a shift
towards service offerings, was probably a big source of embarrassment
internally at some levels.

~~~
onlyrealcuzzo
Almost 80% of IBM's profits come from its cloud division, which is only 27% of
it's business.

It seems like the idea behind the Red Hat acquisition would be to increase the
cloud division revenue and keep roughly the same profit margin, which in
theory could be great for their bottom line, especially if Red Hat is growing
quickly (is it?).

The arm chair CEO in me doesn't see how this adds up, though. Red Hat seems
pretty pricey. I just don't see how Red Hat competes with AWS, Azure, and GCP
moving forward, and I don't really see how it plays nicely / fits into those
clouds either. I also don't see how it would make IBM's cloud more attractive.
I can see how it could make IBM's cloud more profitable, but it seems like a
stretch, given what they paid for Red Hat.

~~~
kitd
_I just don 't see how Red Hat competes with AWS, Azure, and GCP_

It doesn't. Their cloud tech, OpenShift, runs on top of the others. Kubernetes
can sit on top of that. It makes private clouds portable (kind of).

~~~
babarock
Slight nitpick. OpenShift, since its latest major version (3?) _is_
Kubernetes. It's mostly a repackaging/distribution of k8s. OpenShift can run
on top of AWS/Azure/GCP, but also, most importantly, OpenStack.

~~~
samtrack2019
Another nitpick, openshift is not a repackaging but a fork of Kubernetes pure
and simple, if you look at the origin you'll see those merge patch they do on
every Kubernetes releases

------
calgoo
I really hope IBM can keep their fingers out of Red Hat, if not, it does not
matter how many promises they make, they will run it into the ground. If they
actually manage to keep away, and let their cloud business grow without
interference; they actually have a chance to grab a big piece of the cloud
business.

~~~
DevX101
You don't spend $34B to not interfere.

~~~
bmicklea
I respectfully disagree - I'm a Red Hatter so you can take that for what it's
worth. To me the 34B buys IBM the real estate in the open hybrid cloud market
which Red Hat has built up in the last 5 years. That is part of a large and
rapidly growing market. If IBM interferes with Red Hat they will likely
squander the value of what we've built. If they foster what Red Hat did to win
that critical ground then their 34B could stand to increase substantially.

~~~
bloopernova
I certainly don't want to argue or appear confrontational, but wanted to ask
you this:

Have there ever been any situations where the acquisition of a smaller company
by a larger one has resulted in the smaller company remaining independent? Or
has there been any positives for companies like Red Hat when they get bought?

Usually I hear or read the positive-yet-bland press release talking about how
wonderful this is, and how big-corp won't destroy little-corp's culture. Yet a
year or less afterwards, I read stories of how everyone in little-corp has
been laid off, and now little-corps applications/services are now crap.

I'm a _huge_ Fedora/CentOS/RHEL fan, and use it every opportunity I get. I'm
very, very worried that Red Hat will be gutted and defiled until there's
nothing left. Which is a very, _very_ bad thing for open source because Red
Hat is a huge cornerstone of OSS development and support.

~~~
jackhack
I usually put it this way: "Name one company that was better after a merger."

I've yet to find any affirmative answer.

It's good to have hope, but it's not good to be unrealistic.

~~~
topkai22
Pixar / Disney

Marvel / Disney

Facebook / Instagram

EBay/PayPal

Exxon/Mobil

Massive numbers of banking / pharma/ industrial mergers.

I will agree though that I can't think of a tech sector merger at this scale
that worked out really well. They seem to work best at the sub $2B level.

Although LinkedIn/Microsoft is looking OK.

~~~
ScottFree
What you don't hear about are the dozens of companies Disney has acquired then
shut down over the years. Playdom. Tapulous. Junction Point Studios. Fall line
Studios. Wideload Games. Propaganda Games. Black Rock Studios.

~~~
topkai22
Or the tragedy of LucasArts, which is one reason I left LucasFilm off the
list.

Disney and gaming seem like a match made in heaven, but for some reason it
seems like the mouse struggles to perform in that market compared to its
unqualified successes in Movies, TV, and theme parks.

------
bitwize
IBM basically has control of _all of Linux_ now. They've gotta love that
sweet, sweet strategic leverage over the entire Web and cloud ecosystem.

~~~
stirfrykitty
There is a lot of truth to this. Since Fedora is the upstream for Red Hat, and
IBM historically kill off anything not making a profit, how long before this
happens? I wonder if they'll split the two?

Red Hat does "control" a disproportionate amount of Linux development.
Everything is also now basically dependent on systemd.

I'm seeing more and more IT guys I know move over to Free/OpenBSD because they
don't like the direction Linux is taking. While Linux is only a kernel, the
entire userland is basically dependent on systemd.

Linux has become what it hated in Windows. A massive, bloated mess. I've
always preferred BSD on the server and something else on the desktop (hurry
up, Haiku!). I still wish BeOS would have gotten more traction beyond the
BeBox.

Methinks the move towards FreeBSD--and it's happening in quite a few circles,
will continue, especially if IBM get heavy handed with Fedora/Red Hat. I'm not
worried, per se, but I am concerned, for the aforementioned reasons.

~~~
jvagner
> the move towards FreeBSD

Who? Where? for what?

You mentioned BeOS. Sorry, I love nostalgia too, but I have no idea what
you're talking about. Out in AWS, GCP, Azure, DO -land... it's still going to
be Ubuntu, Debian, CentOS, Windows, etc for a long time.

~~~
stirfrykitty
It's all in what people are willing to tolerate or change. Obviously, the
gentlemen over at Haiku feel they have something to offer, as small as it may
be. I always though that BeOS was somewhat revolutionary in its approach.

I'm still somewhat bothered that Apple let their server offering go. And yes,
FreeBSD replaces Linux easily. Not everyone runs their stuff in the cloud.
It's not the be-all and end-all. Serious non-IT businesses are still on
mainframes, BSD, and other, and there are plenty of them. A friend of mine is
a COBOL programmer for a large financial house, and he's set for as long as he
wants to work there, and at almost $80hr (Texas), he's making better coin than
most programmers here.

~~~
m45t3r
> And yes, FreeBSD replaces Linux easily.

No, it doesn’t. Take any non trivial system running Linux and try to run it in
FreeBSD. You may get it running in little time, however the number of issues
you would have would be big.

Remember that the modern stack have multiple layers of complexity, Linux, your
app, SomethingSQL, AnotherThingDb, Kubernetes, AWS/GCE/Azure, etc. Since
FreeBSD is not the common choice to run those things you will probably hit a
issue here, another issue there, a combination of issue in one layer with
another, etc.

Yeah, this may say more about our current systems than anything, however to
say that it is easy to substitute Linux with FreeBSD is simply not true.

~~~
bluGill
Depends on the system. For a desktop enviornment you are correct, *bsd is at
best an after thought to pretty much all projects. However "serious" server
programs tend to get much more testing on BSD. I don't think you will have any
issues running a database on BSD, and probably not a web server (though some
web frameworks are Linux first so YMMV)

~~~
trasz
The biggest problem in "FreeBSD desktop" is not the "FreeBSD" part - that
works pretty much fine.

~~~
bluGill
I run a FreeBSD desktop. There are enough problems that I wouldn't install
that for my family. Too many blank windows and the like (I suspect graphics
driver issues but have no idea how to debug further)

~~~
trasz
I wouldn't install it for my family either, but I wouldn't do that with Linux
either. It can be fine for chromebook-like usage, but not as the usual
desktop.

------
meddlepal
This is a great move for both companies. The doom and gloom in this thread is
depressing.

RedHat gets access to IBMs massive sales machine and IBM picks up a number of
key technologies. Win-win.

~~~
devonkim
The problem with any M&A is no different than what happens in marriages - do
the two blend together, does one dominate the other's culture, etc? The truth
is that IBM's history (and to be fair, almost all 10-figure+ market cap tech
companies) even with multi-billion dollar acquisitions (that's almost all they
do with the exception of Google and Apple I can think off the top of my head)
is that the current company's inertia dominates whoever they acquire and the
internal sales-driven culture in developed markets supersedes anything
resembling engineering related from a company they acquire. Sometimes IBM gets
ripped off too but wishful-thinking top-down thinking instead of a more
critical, measured engineering oriented focus is typically not consulted even
for absolutely essential company initiatives internally.

Disclaimer: former IBM employee with short tenure with a failed acquisition by
every definition of it

~~~
pmoriarty
_" the current company's inertia dominates whoever they acquire and the
internal sales-driven culture in developed markets supersedes anything
resembling engineering related from a company they acquire"_

What engineering-related innovation has RedHat come up with?

As a Linux sysadmin I've noticed that all of the companies I've worked at that
have used RedHat chose it not because it was innovative but because:

1 - they could get a support contract

2 - because RH dominated the commercial Linux space

3 - because RH was the OS the admins knew and both wanted to leverage that
knowledge and keep their knowledge current for continuing work with this
market leader in future jobs (as that was likely the OS they'd use in most
jobs to come)

Most of the "innovations" I can attribute to RH have been widely seen in the
sysadmin community as negative. Innovations such as systemd, Network Manager,
and selinux. The latter two we've often turned off because they caused so many
problems. Unfortunately, systemd was too integrated in to the OS to be able to
turn off.

There's RPM, but that was created decades ago when RH was not the company it
was now, and it's just one packaging format out of many, and not one that IBM
even needs to spend billions to buy. The only other positive tech that RH owns
that I can think of is Ansible. But they didn't create it. They bought it.

What RH-originated innovations should we impressed by?

~~~
pstch
The engineering culture is not solely determined by the innovations the
company has come up with, so I don't really see the point of the question you
ask, with regards to the statement you quoted.

When you say that "most of the innovations [...] have been widely seen in the
sysadmin community as negative", well, that can only be true in your own
sysadmin community. If you replace "innovation" by "contribution", and make
the list include everything RH works on (SELinux, NM and systemd are really a
tiny part of it), the sentence becomes factually incorrect, even in your own
sysadmin community (I hope).

Also, systemd was not created by RH (LP was not employed by RH at the time),
and SELinux is from the NSA's TRUSIX. Labeling SELinux as a "negative
innovation" is very weird (not that whole sentence isn't).

When you say that RH's only "positive tech" is Ansible, but that it was an
acquisition, that's true for mostly everything RH participates in (Ansible,
but also systemd, OpenStack, Ceph, CoreOS, GlusterFS, KVM, LVM/DM, gcc, gdb,
systemd etc... were acquisitions or acqui-hires), so I really don't see your
point. Does the fact that all of this software originated from somewhere else
than RH negates the existence their engineering culture ?

EDIT: made quotes inline

~~~
pmoriarty
If the bulk of RH's tech was acquired and did not originate with them then why
is their engineering culture even relevant? What engineers work by
acquisition? That doesn't sound like engineering to me but business.

Now, if you're talking about the engineering cultures of the companies RH
acquired, if RH was able to preserve the engineering cultures of the
acquisitions they made, why can't IBM?

Also, if by "engineering culture" you're not actually talking about any
innovative products that RH itself came up with, but rather the contributions
that RH engineers made to open source projects like gcc or the Linux kernel,
IBM has done a lot of that too. I'm not sure why that wouldn't continue under
IBM's stewardship of RH.

~~~
pstch
I feel bad for having inserted myself into this discussion. I think I'm
actually agreeing with you here, in that there's nothing that shows that IBM
couldn't preserve the culture of its acquisition. I just wanted to comment on
what I thought was a statement on their engineering culture.

Personally, I just hope that RH can preserve its engineering culture. I can't
say anything on whether it will happen or not, because I don't know.

------
einpoklum
IBM now has control over systemd, and as other users here point out, also
pulseaudio, dbus, gnome, wayland, and a significant share of kernel.

IMHO this is a good time for the Debian project to reconsider the decision to
rely on systemd. If you also think so, consider letting them know.

~~~
_delirium
Is there really any likelihood of that happening? If Torvalds got cold feet
about systemd and started making it less integral to the upstream kernel (or
at least more walled off as an optional subsystem), there's a chance Debian
would take that as an opening to move in a non-systemd direction. But as long
as the upstream kernel imports more and more systemd-related stuff and treats
it as the default/expected configuration, and then things like desktop
environments follow suit and depend on it, Debian would need to maintain what
amounts more and more to its own fork of the rest of the Linux world to do
otherwise. When this was last discussed, most Debian developers didn't think
it had the dev resources to do that.

~~~
bonzini
That makes no sense. As long as Linux is concerned, systemd is totally
irrelevant: it is not "integrated" in the kernel in any way and cannot even be
considered a subsystem.

------
ilovecaching
Feel sad, I know it's just the way things go in big business, but watching a
prime example of a fiscally successful company built on open source who has
committed so many resources to kernel development and making the Linux
community better get bought by a beached whale like IBM just shakes me.

~~~
bmicklea
I run Red Hat's Developer program, our developer tools portfolio and our
developer relations team. When I first heard the news I had a similar
reaction. But I've worked with IBM'ers in open source projects for years and
they've always been great contributors. Perhaps more importantly both IBM and
Red Hat are very committed to not changing our open culture and open source
development model. That's been the source of our growth and why IBM felt we
were worth 34B. Ultimately words are cheap, so if you see Red Hat's actions in
the open source community changing please say something - I for one am
committed to continuing to work the open source way.

You can read my blog post and comment here:
[https://news.ycombinator.com/item?id=20391504](https://news.ycombinator.com/item?id=20391504)

~~~
jbob2000
Open source doesn't make money, you're at IBM now to save their failing cloud
business. If you can't do that, expect your time on open source to dry up.

~~~
rwmj
Open source absolutely does make Red Hat money, billions of dollars a year.

~~~
jbob2000
Open source doesn't make them that money, _servicing_ open source does.

~~~
babarock
How will they service open source if they stop funding its development?

I'm assuming that you're implying that's what IBM wants?

------
yitchelle
Does this acquisition open up the market for a Linux company to move into the
Linux enterprise space?

Maybe Ubuntu could pivot into this space.

~~~
bmicklea
Red Hat's business model and open culture isn't changing. We will remain
independent and I look at this as an opportunity for more people to engage
with our stellar support and field teams.

For some context you can read the email our CEO sent out to the whole company
today: [https://www.redhat.com/en/blog/jim-whitehurst-email-red-
hatt...](https://www.redhat.com/en/blog/jim-whitehurst-email-red-hatters-red-
hat-ibm-acquisition-closing)

~~~
TallGuyShort
I remember a very similar email from my company's CEO during a merger. Within
months he had retired with millions and everything had changed. I sincerely
wish Red Hat and your work doesn't fall victim to a similar fate, but IBM
literally owns you as of today.

~~~
airstrike
That sort of depends on whether the CEO will remain in the company or not, and
which incentives he has to continue to perform

~~~
TallGuyShort
The CEO doesn't have full control over everything. Plenty can (and did) change
even without a change in the CEO. Again - they are literally _owned_ by IBM
now. I'd be optimistic if Red Hat really were to be fully independent with
respect to products. But unless IBM made this investment purely as a financial
strategy, they will absolutely begin interfering.

------
neogodless
Share price was $187.71 prior to the announcement. As posted in the article -
$190/share agreed purchase.

~~~
AznHisoka
And to give even more context, it was $170.00 back in Oct 29 when it was first
announced. Thus, if you bought then and sold now, you'd have a 11.7% return in
8 months. The S&P index would've returned 12% in comparison.

Not risk-free by any means, but almost certainly less risk than buying the S&P
index during that time period. There was a reason Warren Buffett parked a ton
of cash into Red Hat stock after it was bought.

~~~
brianwawok
Is it less risky? Say a decent chunk of your portfolio in a single stock? And
something weird happens during due diligence , not only is the acquisition
over - the stock will bomb.

Not sure how often acquisitions fall through after being announced, I assume
very low. But still seems similar or higher risk then a stock fund.

~~~
lonelappde
Redhat has a 20year history as a public company, it's very unlikely that
there'd be a big surprise in due diligence.

~~~
bklyn11201
I think the worry was less due diligence and more a weird anti-trust case from
USA, China, or Europe.

------
qserasera
One can only hope IBM does not mismanage Red Hat. They will certainly twist
workflow for their benefit. Owners will probably get a well deserved windfall.

~~~
tech_tuna
We're all watching Microsoft with GitHub. . . it'll be interesting to see how
the tech industry evolves over the next 5-10 years.

------
friendscallmejw
Here's the official announcement from Red Hat Developer:
[https://news.ycombinator.com/item?id=20391504](https://news.ycombinator.com/item?id=20391504)

------
vikramkr
Hopefully this helps validate the red hat model to spur more investment into
the space and create a new crop of competitors to fill the void after IBM
ruins red hat.

~~~
bmicklea
I really hope so too. To me this is a huge signal that open source has won.
That alone is exciting.

------
avip
Prev.
[https://news.ycombinator.com/item?id=18321884](https://news.ycombinator.com/item?id=18321884)

------
infraCode
i'm just a lurker and i have a lot of respects for this community but why some
of you acting like somehow RedHat is not going to make money anymore after IBM
bought them.

RedHat already make billion doing what they do now. Why would that change? IBM
is basically a consulting company and adding RedHat is more than a perfect
match since RedHat main business is selling supports.

this thread just wow.

~~~
marcosdumay
Both companies have very different, even incompatible cultures. And it's not
part of IBM culture to buy a company and not integrate it.

Specially, IBM is used to much fatter margins than RH's market allows.

~~~
kortilla
IBM does not integrate companies beyond putting their logo on stuff. Look at
the weather company and Softlayer.

------
tareqak
A different source with the same news: [https://www.cnbc.com/2019/07/09/ibm-
closes-its-34-billion-ac...](https://www.cnbc.com/2019/07/09/ibm-closes-
its-34-billion-acquisition-of-red-hat.html) .

------
billman
What does this mean for centOS?

~~~
yebyen
I was going to say that CentOS is independent from RedHat, but then I realized
I don't know what I'm talking about.

From CentOS wikipedia page:

> In January 2014, CentOS announced the official joining with Red Hat while
> staying independent from RHEL,[7] under a new CentOS governing board.

So, good question!

~~~
techntoke
After taking over they are now slow to ship new releases. It doesn't really
make sense to use CentOS unless you may need to pay for RHEL support.

------
technological
It would be curious to see how Red Hat OpenShift works with parallel to IBM
Cloud Private. Both offer same functionality to the customer and IBM invested
so much amount revenue and time into IBM Cloud Private, so would they co-exist
or merge into one offering is something worth a watch.

Openshift - [https://www.openshift.com/](https://www.openshift.com/)

IBM Cloud Private -
[https://www.ibm.com/cloud/private](https://www.ibm.com/cloud/private)

------
aussiegreenie
At least 80% of ___ALL_ __acquisitions destroy value. IBM has overpaid just
like the vast majority of M &As.

------
galaxyLogic
Is Red Hat's strategy multi-cloud or hybrid cloud? In other words is it easy
enough to run your RH cloud-applications at the same time on all of AWS, Azure
and GoogleCloud?

Or are they "hybrid" in the sense that you can run your apps both on-premises
AND a CHOICE of Azure, AWS etc. ?

~~~
jacques_chester
The answer is "it depends". Their main offering in this space is OpenShift
versions 3 and 4. They have different underlying management planes. v3 is on a
bunch of different clouds, v4 is still catching up but probably will within
the next 12 months or so.

Disclosure: I work for Pivotal, a competitor in the same space (most directly
through PKS).

------
tictoc
The title looks wrong.

------
unixhero
Great for Open Source?

~~~
devalnor
Bam!

------
PaulHoule
I think it may have been RHAT's plan all along to get bought by IBM.

~~~
PaulHoule
Not so sure why this is being voted down.

RHAT has always been seen as an anomalous case of an open source company that
has done well on the stock market on a sustained basis.

All along they were working on things that IBM lacked, waiting for the day
that IBM would be floundering and would need a big acquisition to boost
confidence.

------
christi_meyer
Elastic is the next

Disclaimer: I own a bunch of Elastic stock

