IBM Co.’s recent $34 billion agreement to acquire Raleigh-based Red Hat Inc. has the potential for a $975 million breakup fee if Red Hat’s shareholders were to reject the deal and then enter into a separate deal with another company, according to a filing with the Securities and Exchange Commission on Monday.
The merger’s completion is subject to various conditions before it is consummated. The primary is the approval of the majority of Red Hat’s shareholders in a shareholders meeting.
The deal must also pass through antitrust regulation before being consummated.
Jim Whitehurst, chief executive officer and president of Red Hat, is excited for the opportunity and resources the acquisition brings to the company.
In a blog post to company associates, he noted that the acquisition would provide Red Hat with the capital to invest in innovation in emerging areas, further accelerating its development. It would also deepen its partner and customer relationships while providing more customers the benefits of hybrid and multi-cloud.
“Powered by IBM, we can dramatically scale and accelerate what we are doing today,” said Whitehurst.
He added that IBM is allowing Red Hat to be an independent distinct unit within IBM. Red Hat will look to maintain its people and culture following the acquisition.
As Red Hat moves forward in the acquisition, it sees open source software as the future of enterprise information technology. Open source software is a type of software in which source code is publically released to users and they can study, change, and distribute the code to anyone.
Whitehurst said in the blogpost that he sees the total addressable market for Red Hat to be $73 billion by 2021.
Red Hat was founded in 1993 with the mission to be a leader in the field of open source solutions. It believed that collaboration between IT leaders, open source advocates, developers, and partners would be the foundation for the future of IT.
After the market closed on Tuesday, Red Hat’s stock price had risen 45.4 percent to $169.63.
