Microsoft came out of nowhere to become the leader in Cloud computing and last Wednesday Microsoft announced a record quarter due to the strength of their Cloud business. On Sunday IBM wanted the corporate world to know that they want to seriously challenge Microsoft for top Cloud provider by agreeing to acquire U.S. software company Red Hat Inc for $34 billion, including debt, as it seeks to diversify its technology hardware and consulting business into higher-margin products and services.

Reuters noted that "The transaction is by far IBM’s biggest acquisition. It underscores IBM Chief Executive Ginni Rometty’s efforts to expand the company’s subscription-based software offerings, as it faces slowing software sales and waning demand for mainframe servers.

Founded in 1993, Red Hat specializes in Linux operating systems, the most popular type of open-source software, which was developed as an alternative to proprietary software made by Microsoft Corp.

Headquartered in Raleigh, North Carolina, Red Hat charges fees to its corporate customers for custom features, maintenance and technical support, offering IBM a lucrative source of subscription revenue.

Red Hat is one of the very few companies in the cloud computing sector that has both revenue growth and free cash flow, Rometty, who has been IBM’s CEO since 2012, said in an interview with Reuters." For more on this read the full Reuters report here.

The IBM Press Release Highlights of the Acquisition

• Most significant tech acquisition of 2018 will unlock true value of cloud for business
• IBM and Red Hat to provide open approach to cloud, featuring unprecedented security and portability across multiple clouds
• Deal accelerates IBM's high-value business model, making IBM the #1 hybrid cloud provider in an emerging $1 trillion growth market
• Acquisition will be free cash flow and gross margin accretive within 12 months, accelerate revenue growth and support a solid and growing dividend
• IBM to maintain Red Hat's open source innovation legacy, scaling its vast technology portfolio and empowering its widespread developer community
• Red Hat to operate as a distinct unit within IBM's Hybrid Cloud team

IBM and Red Hat, the world's leading provider of open source cloud software, announced today that the companies have reached a definitive agreement under which IBM will acquire all of the issued and outstanding common shares of Red Hat for $190.00 per share in cash, representing a total enterprise value of approximately $34 billion.

Ginni Rometty, IBM Chairman, President and Chief Executive Officer: "The acquisition of Red Hat is a game-changer. It changes everything about the cloud market. IBM will become the world's #1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.

"Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs. The next 80 percent is about unlocking real business value and driving growth. This is the next chapter of the cloud. It requires shifting business applications to hybrid cloud, extracting more data and optimizing every part of the business, from supply chains to sales."

Jim Whitehurst, President and CEO, Red Hat: "Open source is the default choice for modern IT solutions, and I'm incredibly proud of the role Red Hat has played in making that a reality in the enterprise.  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 –  all while preserving our unique culture and unwavering commitment to open source innovation."

This acquisition brings together the best-in-class hybrid cloud providers and will enable companies to securely move all business applications to the cloud. Companies today are already using multiple clouds. However, research shows that 80 percent of business workloads have yet to move to the cloud, held back by the proprietary nature of today's cloud market. This prevents portability of data and applications across multiple clouds, data security in a multi-cloud environment and consistent cloud management.

Rometty said on CNBC's "Squawk Box," a day after Big Blue made its largest acquisition and the third-biggest U.S. technology deal ever: "I don't think the world realizes that Linux is the number one platform. This is about lifting all of IBM.

Rometty said Monday she expects investors will be confident in the deal once the company thoroughly explains the benefits, adding she's gotten a "gauge by the hundreds of letters" from investors and clients.

"For us it's all about resetting the cloud landscape," Rometty said. "This is to create the number one company that will be the number one hybrid cloud provider."