Is IBM Crazy: IBM Buys Red Hat at 63% Premium!

They are polar opposites, IBM and Red Hat! One company a mainframe mega giant and the other an open source magnet! How will they get along? Today, IBM bought Red Hat for a whopping $34 billion, what will happen next? What about the future of open-source? Will Red Hat get BLUE washed? WOW!

Only time will tell what is going to happen next but one thing is for certain: IBM paid a premium for Red Hat at $190 per share on a stock price that was $117 per share prior to the merger. IBM paid a 63% premium for Red Hat. IBM believes Red Hat is worth 30x its current earnings in the next 12 months which is a pretty significant bet going forward! I think IBM is a bit out of its mind! This is text book for CRAZY MATH!

It is the third largest technology acquisition ever! CEO and President Jim Whitehurst of Red Hat: states: “Joining forces with IBM will provide us with a greater level of scale, resources and capabilities to accelerate the impact of open source as the basis for digital transformation and bring Red Hat to an even wider audience.”

My question for Jimbo is: What color do you want your YACHTS in? (yes plural) The investors of Red Hat and its founders are amazing pirates!

Ginni Rometty, CEO, president, and chairman of IBM. “The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,” Rometty said. “IBM will become the world’s number one hybrid cloud provider…”

Maybe? or does it? I think it is a huge deal! Why?

Linux dominates server operating systems market!
92% of all Amazon Web Service EC2 images run some flavor of Linux
Most Big Data ecosystems rely on Linux for scale, stability, and performance!

I think IBM is desperate to stay relevant in a cloud market that is dominated by the likes of Amazon Web Services and Azure from Microsoft.

What about all those CentOS or Fedora users? What about them? No need to hit the panic button right away! Will IBM stop organizations from using the CentOS name or any trademarks? Will CentOS be left to die as it does not provide any profit to IBM? Will IBM take some tech out of Red Hat, get some patents, and leave it to die? What about Netezza and other products IBM has purchased in the past and have pretty much died? Lenovo anyone?

My honest opinion is that this merger will come out as one of the top worst mergers in history. It will join the likes of:

Sprint and Nextel
AOL and Time Warner
News Corp and MySpace

Why because just buying a Linux OS company does not make your organization a player in the cloud. It takes more than that. Also, SUSE was purchased by Novell and Oracle has made their purchases of Unix distros and not much has moved the needles for them with respect to the cloud. There are a lot of players in the Linux distro world!

Who knows I could be wrong and we will see in time!