Red Hat and JBoss to merge

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

The transaction is 40 per cent cash and 60 per cent Red Hat stock, with an additional $70m owed, subject to financial performance. Red Hat said the deal, which is expected to close next month, will add to the company's earnings next year.

In a statement, Red Hat CEO Matthew Szulik said the two companies' business models and beliefs are "fully aligned". Both Red Hat and JBoss charge customers a subsciption fee for products and ongoing support, rather than an up-front license fee.

"The open source development model continues to change the economics of enterprise IT in favour of the customer, and we truly believe in the potential of software innovation, once freed from the fetters of proprietary development," Szulik said.

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.

Red Hat currently 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, JBoss founder and CEO Marc Fleury said that given the company's strong finances, the next step for the company "will probably be equity for an IPO or the right M&A".

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

Martin LaMonica writes for CNET News.com.