Red Hat Snaps Up JBoss

Leading Linux distributor Red Hat gained more leverage over its open-source operating systems competitors on Monday, announcing it has signed an agreement to purchase middleware developer JBoss for an initial price of $350 million.

The acquisition will help the company more quickly transition to services-oriented architectures (SOA) by enabling the next generation of Web-enabled applications running on low-cost, open-source platforms, according to company officials in a prepared statement.

"Red Hat and JBoss are fully aligned around the belief that the open-source development model continues to change the economics of enterprise IT in favor of the customer, and we truly believe in the potential of software innovation, once freed from the fetters of proprietary development," said Matthew Szulik, chairman and CEO of Red Hat.

The terms of the deal call for Red Hat to pay 40 percent in cash and 60 percent in Red Hat stock, with an additional $70 million owed, subject to financial performance. Red Hat says it expects the deal to close next month and will add to the company's earnings next year.

Explaining the strategic reasons for the deal, Red Hat officials believe JBoss has established an innovative but standards-based middleware solution that has allowed mainstream customers to more quickly create and deploy SOA-based applications.

Justifying its purchase from an economic standpoint, Red Hat officials point to a recent Gartner study that pegged the application integration and middleware and portal (AIM) markets to be worth about $6.5 billion in 2006. Officials from both companies believe the melding of their combined portfolios will present developers with the technologies they need to better exploit opportunities in that market.

With the deal, Red Hat picks up a best-selling, open-source Java-based application server, which can host business applications. JBoss is also putting together a suite of open-source Java middleware that includes a portal, messaging capabilities and a transaction server. Red Hat offers support for a competing open-source application server, called Jonas.

"I think the union of these two companies will demonstrate the benefits of a pure open-source play," says Marc Fleury, CEO of JBoss. "We see that our customers are increasingly standardizing their infrastructures on open-source technologies and want a stable and trusted global open-source vendor to support them."

Officials from both companies believe the business models of their respective companies are a good fit, given that JBoss modeled its business after Red Hat's subscription-based model of services and support delivered through an online network. JBoss executives say they chose Red Hat because it closely aligned with its vision of "delivering customer value by simplifying development, reducing cost barriers for adoption and making it safer for use in mission-critical deployments."