April 10, 2006 4:43 AM PDT

Red Hat scoops up JBoss

Linux distributor Red Hat said on Monday that it has signed an agreement to buy open-source company JBoss for at least $350 million, a move that expands Red Hat's product line and adds to its growth potential.

The transaction involves 40 percent cash and 60 percent Red Hat stock, with an additional $70 million owed, subject to financial performance. Red Hat said the deal, which is expected to close next month, will add to the Raleigh, N.C.-based company's earnings next year.

Red Hat CEO Matthew Szulik said combining Red Hat and JBoss will enable the company to provide corporate customers with a more complete "open-source stack" of software.

"The planned acquisition reinforces the seriousness of our commitment to developers and customers to provide an integrated development platform of tools and services based on the collaborative power of open source," Szulik said in a conference call Monday with financial analysts.

The two companies employ a similar business model, where they charge customers a subscription fee for products and ongoing support, rather than an up-front license fee.

With the acquisition, Red Hat gains a popular open-source Java application server (used for running custom business applications written in Java) and a more substantial offering for Java developers. JBoss is assembling a suite of open-source Java middleware, including a portal, messaging and a transaction server.

JBoss, which has about 150 employees, will operate as an independent division within Red Hat, with JBoss founder and CEO Marc Fleury reporting to Szulik.

Red Hat sells support for a competing open-source application server, called Jonas, from the France-based consortium ObjectWeb. Red Hat and JBoss had tried to come to terms on a partnership around the JBoss application server but were unable to, JBoss executives have said.

Red Hat's move ends months of speculation over a possible acquirer for JBoss, which has seen rapid growth in the past two years and had become a likely takeover candidate.

Two weeks ago, Fleury said that given the Atlanta-based company's strong finances, the next step for it "will probably be equity for an IPO or the right M&A."

Amid the growing number of open-source start-ups and their investors, the $350 million acquisition number is a validation of the open-source business model and an attractive payout. JBoss was largely self-funded and took in $10 million in venture investment in 2004.

CONTINUED: Red Hat: JBoss' "big brother"…
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Will Open Source business models change?
Oracle, Red Hat, IBM, Novell, and other large players are busy acquiring the most successful open source companies. How will this effect the open source community? Will the acquired companies remain open source? Will business models change? Would you bet your company on open source? Would you build mission critical applications on open source? Questions to consider for entrepreneurs and IT executives.

There are very few open source investment opportunities for VCs. I wrote a blog entitled "Open Source - the Darwinian approach to software" which looks at the odds of success for open source projects. Only the strongest survive.
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Posted by Don_Dodge (64 comments )
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I think this is a good move
I think this is a good move for Red Hat so they can offer a fuller spectrum of services for the Enterprise.

All they need to match what Microsoft offers is OpenOffice and MySQL!
Posted by dragonbite (452 comments )
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Impedance Mismatch
How geeky was that comment?! That takes me back to my RADAR days... ahhhh.
Posted by Andrew J Glina (1673 comments )
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