IBM to Buy Rational Software for $2.1 Billion

By Clint Boulton

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IBM Friday moved to pick up its largest software acquisition since it nabbed Lotus in 1995 when it agreed to buy Cupertino, Calif.'s Rational Software for $2.1 billion in cash.

Armonk, N.Y.'s IBM believes Rational, which offers software, practices and services for developing business applications and building software products and systems, will further enable it to build momentum with its on-demand computing strategy because it will now be able to offer a complete software development environment -- including data management, systems management, collaboration, transaction and business process integration middleware.

Rational provides support for enterprise application development on J2EE, .NET, Linux and other platforms to support application deployment on the customers' hardware and software platforms. The firm's tools also are used to build technical software, commercial software products and software for embedded devices and real-time systems, such as pagers, cell phones, medical devices, air traffic control systems and government defense systems.

For its on-demand play, IBM is targeting companies that want to integrate their business processes and software infrastructure across their divisions. The deal is the culmination of a business relationship between the two firms that stretches back to 20 years.

"Rational supports what IBM does best, which is provide infrastructure software and software tools to help our customers create a complete software development environment," said Steve Mills, IBM senior vice president and group executive, Software Group. "This deal extends IBM's ability to help customers into the 'on demand' future with tools built on industry standards to develop, integrate and manage their business processes."

IDC estimates the market opportunity for application development software will grow from $9 billion in 2002 to $15 billion in 2006.

IBM plans to merge Rational's business operations and 3,400 employees into the IBM Software Group as a new division and fifth brand, joining WebSphere, Lotus, Tivoli and DB2. When and if the acquisition closes, Rational Software CEO and Co-founder Mike Devlin will become the general manager of the new division and will report to Steve Mills.

IBM and Rational anticipate closing in the first quarter of 2003.