IBM to Purchase Rational Software
IBM Corp. agreed Friday to acquire longtime customer Rational Software Corp. for $2.1 billion, the largest in a recent string of acquisitions to bolster its software operations.
The deal values Cupertino, Calif.-based Rational at $10.50 a share, a 28% premium to its closing price Thursday. The shares jumped $2.12, or 26%, to $10.29 in Nasdaq trading Friday. IBM shares slipped 74 cents to $82.32 on the New York Stock Exchange.
“The price is acceptable, if not more than acceptable. They got a pretty good deal,” said UBS Warburg analyst John Jones, who does not own shares in IBM or Rational.
Rational makes tools that companies use to develop software for everything from air traffic control systems to cell phones. Its revenue totaled $689 million in 2001 and is forecast to dip to $650 million in 2002. The overall market for software development tools is expected to grow from $9 billion this year to $15 billion in 2006, according to technology research firm IDC.
The acquisition of Rational would allow Big Blue to offer a wider range of software development tools to its customers, said Steve Mills, IBM’s senior vice president for software.
Jordan Klein, an analyst who follows Rational for UBS Warburg, said he was surprised that the company would agree to a deal now and at just $10.50 a share.
He noted that Rational is profitable and has a strong balance sheet, positioning the company well now that the worst of the technology bust seems to have passed. Rational also has valued its independence for more than 20 years, he said.
But Rational’s president and chief operating officer, Tom Bogan, said the deal comes at the right time and at the right price.
Armonk, N.Y.-based IBM plans to merge Rational’s operations into its software group and keep Michael Devlin, Rational’s chief executive and co-founder, as its general manager. IBM said it expected to retain most of Rational’s 3,400 employees.
IBM said it would continue to produce Rational’s development tools for Java-based programming, the free Linux platform and Microsoft Corp.’s .Net platform.
