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Red Hat buys Cygnus

Cygnus acquisition makes plenty of sense

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Red Hat has bought Linux software development tool specialist Cygnus, as anticipated last week, in a stock-swap deal valued at $674 million. If Cygnus shareholders approve the plan, the two companies will become one before the end of January 2000. The move makes good sense for both companies, but Red Hat is the main beneficiary. Cygnus' lucrative development tool business is not only lucrative -- which is handy for the loss-making Red Hat -- but it broadens Red Hat's product portfolio, allowing the company to counter the perception in the business world that it's just a Linux distributor. Interestingly, Red Hat's statement outlining the acquisition also stresses Cygnus' experience with embedded applications and "post PC-centric platforms". That suggests Red Hat is also interested in breaking into the emerging market for embedded versions of Linux, one of the key areas for commercial exploitation of the open source OS. Meanwhile, the executive reshuffle at Red Hat the Cygnus takeover was rumoured to have provoked appears to have pretty much gone as we expected. In place of the rumoured senior resignations, co-founder Bob Young has handed over his CEO badge to the company's president, Matthew Szulik. Young will continue in the role of company chairman. Making Szulik CEO is essentially about putting the running of the business in the hands of the business guy. Post IPO and with expansion on the agenda, Red Hat needs to be taken seriously as a major software company, and part of that means broadening the product line -- hence Cygnus -- and putting day-to-day and strategic control in the hands of someone with more business credibility that Red Hat's more techie founders. ®

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