*By Carlo Versano* In a tacit admission that its cloud-computing division was lagging behind competitors like Amazon and Microsoft, IBM announced it would shell out $34 billion for open-source software maker Red Hat ー an amount equal to almost a third of IBM's market cap. "Only about 20 percent of the cloud journey for enterprise is over," Arvind Krishna, senior vice president of IBM Hybrid Cloud, told Cheddar Monday. "The next chapter is all about the more mission-critical workloads." Krishna said Red Hat's open-source Linux infrastructure, which is popular among companies running large servers and data centers, is well-positioned to take advantage of that next phase. Speaking alongside Krishna, Red Hat's ($RHT) vice president of product Paul Cormier said the acquisition will allow the 25-year-old company to scale into a truly global business. "Demand is not our issue," he said. "Reach is." "IBM solves that in spades," he added. The deal ー at $190 per share ー represents a more than 60 percent premium over Red Hat's Friday closing price of $116.68 and indicates just how seriously blue-chip legacy tech companies are taking the ongoing transition to cloud computing. Krishna said the jaw-dropping premium ー dizzying even by Silicon Valley standards ー is reasonable, given the value of the asset. It is IBM's ($IBM) largest ever and the world's second-largest tech deal, according to Bloomberg. It marks the latest in a string of M&A involving cloud-based, open-source software developers. Just this year, Microsoft ($MSFT) spent $7.5 billion to buy GitHub, Salesforce ($CRM) shelled out for MuleSoft, and SAP ($SAP) snatched up CallidusCloud. IBM CEO Ginni Rommety [called](https://www.prnewswire.com/news-releases/ibm-to-acquire-red-hat-completely-changing-the-cloud-landscape-and-becoming-worlds-1-hybrid-cloud-provider-300739142.html) the acquisition a "game-changer" and said Red Hat would become a stand-alone unit of IBM's Hybrid Cloud division. Krishna added that Red Hat's entire business model depends on neutrality, and for that reason, IBM would seek to preserve its independence. "There's not going to be any undue influence that is applied one way or another," he said. Cormier added: "It's business as usual." Investors hoping a deal of this magnitude would be enough to elevate the struggling tech sector and the Dow, of which IBM is a member, were disappointed. Moody's, citing the debt IBM was taking on, [said](https://www.moodys.com/research/Moodys-places-IBM-senior-unsecured-rating-under-review-for-downgrade--PR_390869) it was placing the company's credit rating on review. The rating agency noted that the deal is a "departure from IBM's historical acquisition philosophy of making small, tuck-in acquisitions that limit integration risk." For full interview [click here](https://cheddar.com/videos/ibm-makes-big-bet-on-the-cloud-market-with-red-hat-deal).
