1. To make significant profits, we need to sell services on top of our software products (this is essentially GBS and their "strong" sales people)
2. To make very good profits, we need to make highly customizable software (for example AI and BI offerings).
3. To make even more profit we need to make sure the software is tuned to the hardware we make.
If one of those weakens the entire IBM portfolio and profits weaken dramatically.
Here's problems in last 7 years tho:
1. People moving to the cloud so the hardware business flatlines.
2. Because people moved to the cloud they found replacements to IBM software.
3. At the end of the day IBM is forced to deliver professional services on top of other companies' software and hardware (and services employees are not cheap).
At some point the IBM execs must have had an epiphany that their AI offerings don't sell because they don't have a platform that sells other commodity cloud services on top of which AI components can be sold as high-priced addons.
So thus IBM decided to do what it does best --- take control of the entire stack.
With this acquisition IBM has the potential to become a next gen. cloud vendor. For example IBM has been trying to sell Bluemix as a hybrid PaaS/IaaS but haven't been very successful. The engineering team in Bluemix is weak and one way to really up the ante is getting access to top talent in the industry to do this (CoreOS team, Openshift.io team, linux kernel devs, distributed storage devs).
Let's take reality, RedHat is still a small player compared to Amazon, Microsoft or Google. They don't have the bandwidth to compete on all the additional hosted services offerings. By partnering with IBM, they get access to IBMs entire suite of enterprise customers and hosted products, making them a serious competitor to the 3 big players instead of being a "me too, cloud". They could make it big together, looking optimistically. But it's on IBM to not screw this up.
I think a lot of readers probably don't understand what that line means. Even if the C-suite at RedHat did not want to do this, they have no choice. Shareholders can riot and oust you(executives) for not taking what they consider to be the "best deal"(and this is one heck of a deal). Long story short, even if you don't want to sell - once the price is high enough, the shareholders will force you.
.. they probably though the price right now is better than what they would get in 5 years.
That $120 was really high for redhat, who just crossed the $100/share price last year. (unless you count year 2000/dotcom-IPO-madness) RHT's market cap was previously $20B.
That's not weird. It's a bit much as these things go, but 20-30% over the share price would not raise any eyebrows.