Red Hat buys Cygnus for $674 million

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Red Hat, Inc. (Nasdaq: RHAT) said Monday it will buy privately-held Cygnus Solutions for about $674 million in a move to accelerate the adoption of Red Hat Linux.

Shares in Red Hat closed at 101 13/16 Friday, down from the 52-week high of 135 1/4. Shares have risen since the company reported its second quarter was on target with estimates. The company blasted off in its IPO last August. Cygnus, a maker of open-source software, will give Red Hat ammunition to build out Linux, which was the fastest growing server operating system in 1998, according to International Data Corp. (IDC).

The transaction, to be completed in a stock swap merger in which Red Hat will issue up to 6.6 million shares for all of the outstanding securities of Cygnus, and will be valued at $674 million based on Red Hat's Friday closing price. The merger is expected to close by late January 2000.

The merger will give Red Hat end users the benefit of the company's full spectrum of open source software and support and partnerships such as Compaq (NYSE: CPQ), Dell (Nasdaq: DELL), IBM (NYSE: IBM), Intel (Nasdaq: INTC) and Hewlett-Packard (NYSE: HWP).

"The merger will create a single, worldwide source that lets developers rapidly create Linux applications for servers and small devices --- accelerating the adoption of open source technologies," the company said.

According to IDC, Red Hat was the most popular distributor of Linux with 68.7 percent market share.

Red Hat also said Monday that it will promote Matthew Szulik to president and CEO of Red Hat. Szulik joined Red Hat as president in November of 1998.

Bob Young, currently CEO and chairman, will become chairman of Red Hat. The company said Young will remain active in the strategic and creative direction of Red Hat.