Red Hat announced that it has entered into a definitive agreement to acquire JBoss, the global leader in open source middleware. By acquiring JBoss, Red Hat expects to accelerate the shift to service-oriented architectures (SOA), by enabling the next generation of web-enabled applications running on a low-cost, open source platform.

"It is at Red Hat's very core to help unlock the power of open source and open communities to innovate across industries, geographies and economies," said Matthew Szulik, Chairman and CEO of Red Hat. "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."

Red Hat will acquire JBoss for approximately $350 million in initial consideration, plus approximately $70 million subject to the achievement of certain future performance metrics. The transaction consideration is composed of approximately 40% in cash and 60% in Red Hat common stock. The acquisition is expected to be completed around the end of Red Hat's first fiscal quarter (May 2006), subject to customary closing conditions, including regulatory approval.

The low-cost on-ramp to SOA

The adoption cycle for new technologies is littered with early adopters, who spent millions of dollars subsidizing "new" platform software that never lived-up to the hype. JBoss has shattered that model by providing innovative, standards-based middleware solutions at a low cost, to enable mainstream customers to develop and deploy next-generation, service-enabled applications much sooner than previously expected. According to Gartner, Inc., the Application Integration and Middleware and Portal (AIM) markets for license revenue is preliminarily estimated to more than $6.5 billion in 2006. Paired with Red Hat's proven portfolio of enterprise solutions, Red Hat believes the combination, once consummated, will help accelerate the shift to SOA by making innovative, powerful solutions available to developers and customers that seek to lower development and deployment costs.

The Common Bond of Open Source

With each committed to advancing open source software and its collaborative development model, Red Hat and JBoss have been recognized as open source leaders. The large and vibrant communities around Linux and JBoss prove that the open source development model creates innovative, quality software, while providing a flexible and low cost model for customers. This acquisition is expected to accelerate enterprise adoption of open source infrastructure, and broaden the entire market opportunity for existing and new Red Hat and JBoss partners who are building value-added enterprise solutions.

A complete fit - business model, channels, service delivery, and culture

JBoss has modeled it's business after Red Hat's proven subscription model - services and support, delivered through an online network. Red Hat provides established channels and global service delivery capability trusted by the enterprise. JBoss adds enterprise-proven middleware technology, community leadership, and a strong developer brand to Red Hat - a tight fit of business model and service delivery model. JBoss management chose Red Hat because it aligns to the vision of JBoss - delivering customer value by simplifying development, reducing cost barriers for adoption, and making it safer for use in mission-critical deployments by providing expert support services and advanced management tools.

"The union of these two companies will demonstrate the benefits of a pure open source play," said Marc Fleury, CEO of JBoss. "Our customers are increasingly standardizing their infrastructures on open source technologies and want a stable and trusted global open source vendor to support them. By joining forces with Red Hat, we expect to be able to provide enterprises the largest offering of open source solutions, a global services network staffed by technology experts, and a large and vibrant eco-system of certified products and services. This is a winning combination that we believe will further expedite the proliferation of open source in the enterprise, which has been our mission since day one."

Red Hat believes that the acquisition will be slightly dilutive to its quarter ending August 31, 2006, but neutral to earnings and cash flow for the full fiscal year. The transaction is expected to be accretive to both earnings and cash flow in the next fiscal year ending February 28, 2008.

For more information please visit http://www.redhat.com or http://www.jboss.com. Red Hat will be host a press/analyst webcast today at 9:15am EST. To access the webcast, please visit http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=67156&eventID=1292560.