IBM reinvents itself with Red Hat mega deal, joins the party in the cloud

EDINBURGH — The executives at lumbering information technology (IT) beast IBM seem to have suddenly woken up to a world in which free software has transformed the business environment. After underestimating the threat of systems like Linux, the company has taken the bold step of buying an open source software company with a controversial business model – for a record price. Respected international finance magazine The Economist has unpicked the details, concluding that there are risks that snapping up Red Hat won't work to reinvigorate the venerable IT firm. In the meantime, the purchase is a victory for open source software activists. – Jackie Cameron

By Thulasizwe Sithole

Even a few months ago the idea that IBM, a venerable corporate information-technology (IT) firm, would buy Red Hat, the biggest vendor of open-source software, would have been considered highly unlikely, not least because of IBM'S aversion to big mergers, says The Economist. "But on October 28th IBM announced that it would take over the firm for $34bn, which represents a 63% premium over Red Hat's closing share price at the end of last week."

The deal, the biggest ever in software, shows how fundamentally the IT industry has changed — and how much pressure IBM felt to do something to get out of its funk, continues the business publication. "Red Hat is no household name, but in the IT industry the firm is considered one of the biggest success stories of the recent past. Founded in 1993 it grew rapidly and reached $2.9bn in revenue in its most recent fiscal year."

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