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At nearly $5b, Cognos deal is IBM's biggest yet

390 work in Mass. for Canada-based maker of software

Email|Print| Text size + By Robert Weisman
Globe Staff / November 13, 2007

Technology giant IBM Corp., in its largest acquisition ever, yesterday said it agreed to pay nearly $5 billion to buy Cognos Inc., a Canadian software company with US headquarters in Burlington.

The deal, expected to be completed in the first quarter of 2008, will help IBM keep up with competitors in the rapidly expanding market for business intelligence software. The software helps companies mine their vast databases for information on sales and customers, extracts relevant data, and quickly presents it in digestible formats.

Under the agreement, IBM, based in Armonk, N.Y., will pay $58 a share in cash for Cognos. The price tag represents a 9.5 percent premium over the closing price of Cognos last Friday.

Cognos, which has its corporate offices in the Canadian capital of Ottawa, employs 390 in Massachusetts, including 300 at a North American sales and marketing office in Burlington and 90 at an operation Cognos took over in Westborough in September when it purchased analytics software firm Applix Inc.

"It's a very complementary acquisition for IBM," said Paul Hamerman, vice president for enterprise applications at Forrester Research. He said IBM, the second-largest global software company after Microsoft Corp., has focused largely on infrastructure programs such as databases rather than application software that lets businesses manipulate data. Cognos will move IBM into applications, he said.

Shares of Cognos jumped $4.17, or 7.9 percent, to $57.15 in Nasdaq trading yesterday. IBM's shares, meanwhile, advanced $1.20, or 1.2 percent, to $101.45 on the New York Stock Exchange.

IBM officials wouldn't speculate on whether the Cognos operations in Massachusetts will expand as a result of the acquisition. "We certainly intend to grow the Cognos brand globally," Steve Mills, IBM senior vice president and software group executive, said in an interview, "but it's hard to say right now where that growth will land."

Since it acquired Lotus Development Corp. of Cambridge for $3 billion in 1995, IBM has purchased eight other software companies in the Bay State, including Rational Software Corp. and Ascential Corp., and established Massachusetts as a software development hub. In August, the company said it would consolidate many of its state software operations in an 800,000-square-foot campus near Interstate 495.

But it's unclear whether Cognos will be part of that campus, which will consist of two buildings IBM is now leasing in Westford and two adjoining buildings it will lease about three miles away in Littleton. By the end of the decade, IBM is expected to have about 3,400 of its nearly 5,000 in-state employees on the Westford-Littleton campus.

Unlike most of the Massachusetts companies IBM has bought over the past 12 years, Cognos has no research and development in the state. Its chief executive Rob Ashe and the rest of the Cognos senior management team will remain in Ottawa, reporting to IBM's information management software division. "We haven't specifically laid out the road map for the Cognos employees in Massachusetts," said Mills.

Ashe, on a conference call with Mills, cited the compatible culture and lack of product overlap between Cognos and IBM. He called the deal a "win-win situation" for shareholders of both companies.

Business intelligence software is expected to generate $5.2 billion in global sales in 2007, up 12 percent from last year, according to estimates from the technology research firm Gartner Inc. As companies clamor for tools that let them analyze their expanding volumes of data, "they're looking for new information, new insights, the ability to make decisions on the fly," IBM's Mills said in the conference call.

Two of IBM's leading database competitors inked deals with business intelligence software companies this year. Database goliath Oracle Corp. agreed to purchase Hyperion Solutions Corp. for $3.3 billion in April, and last month Germany's SAP AG signed a deal to acquire Business Objects for $6.8 billion. A third Cognos rival, the privately held SAS Institute Inc., remains independent.

Colleen Graham, research director for Gartner, said IBM may have been responding to moves by Oracle and Microsoft to embed business intelligence functions into their database software. "IBM didn't have an answer to that," Graham said. "And in order to preserve their position in the database market, they needed to have an answer."

Robert Weisman can be reached at weisman@globe.com.

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