NEW YORK (CNNfn) - Red Hat Inc., the leading U.S. distributor of the Linux computer operating system, is buying privately held Cygnus Solutions in a stock swap deal worth $674 million, the companies said Monday.
Sunnyvale, Calif.-based Cygnus Solutions provides development tools and platforms.
The price tag is based on Research Triangle Park, N.C.-based Red Hat's Nov. 12 closing price of 101-13/16. Under terms of the agreement, Red Hat will issue up to 6,624,344 shares for all of the outstanding securities of Cygnus. The deal will be accounted as a pooling of interests and is subject to approval by Cygnus' shareholders.
The merged companies said they plan to further the development of open source technology, which provides the inner workings of software for free to developers. Open source is the most popular distribution method among U.S. users of Linux, an alternative to Microsoft Corp.'s (MSFT) Windows operating system, according to the research firm IDC.
The companies said they have partnerships with computing vendors including Compaq, Dell, IBM, Intel and Hewlett-Packard to support their adoption of open source solutions.
Besides software for PCs, open source technology is applicable to software for such devices as handheld computers, personal desk assistants and smart phones.
Red Hat (RHAT) said it expects the merger to close by Jan. 27. Matthew Szulik, president of Red Hat, will act as the combined companies' president and CEO.
In early morning trading Monday, Red Hat -- which went public in August -- rose 1-3/4 to 103-9/16.