In a challenge to industry giants Oracle and SAP, business applications vendor JDA Software said Monday that it has agreed to acquire rival i2 Technologies for $346 million in a move that would double its size.

Both JDA and i2 specialize in supply chain management software, which helps companies automate inventory recording and funnel real-time warehouse information to front-office departments like sales and billing.

Under the agreement, JDA will pay $14.68 per share to acquire all of i2's outstanding stock. The offer represents a 4.9% premium on Friday's closing price for i2 shares. The deal is debt financed, with JDA tapping funds from investment banks Credit Suisse and Wachovia.

The deal would create a single company with revenue of more than $600 million. JDA executives said the move would better their company's ability to compete with heavyweights like SAP and Oracle -- particularly in the manufacturing market.

"By acquiring i2, we double our addressable market in manufacturing," said JDA chief executive officer Hamish Brewer, in a statement. I2's manufacturing customers include LG Electronics, Caterpillar, and Toyota.

JDA also said that the combined companies could achieve a total cost savings of about $20 million by paring overlapping areas. JDA has about 1,700 employees, while i2's head count totals about 1,300. It's likely that those numbers would be reduced somewhat as a result of the tie up.

The merger is the latest sign that consolidation in the business software market is heating up. Earlier this year, IBM bought out Canadian business intelligence application vendor Cognos for $4.9 billion. In 2007, Oracle announced a deal to buy business performance management specialist Hyperion for $3.3 billion. Also last year, SAP announced an agreement to acquire Business Objects for $6.8 billion, or $59.35 per share.

JDA said it expects to complete its buyout of i2 in the fourth quarter, subject to closing conditions. Shares of i2 were up 1.13% in early trading Monday, to $14.32. JDA shares were up slightly more than half-a-percent to $18.02