Software AG To Buy webMethods For $546 Million In Challenge To IBM, Microsoft - InformationWeek

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Software // Enterprise Applications

Software AG To Buy webMethods For $546 Million In Challenge To IBM, Microsoft

Software AG has no plans to eliminate any products at either company, but some analysts say there is significant overlap among the two product lines.

In the latest sign that the enterprise software market is consolidating, Software AG, a German developer of business integration tools, said Thursday that it plans to acquire webMethods for $546 million in cash.

Both companies develop software that allows businesses to link related processes -- such as invoicing and shipping -- to create highly automated internal workflows that can save time and money. Software AG is known mostly in the European markets, while webMethods is predominately a U.S. seller.

Software AG chief executive Karl-Heinz Streibich said in an interview the buyout of webMethods will significantly expand his company's geographic footprint. "This deal will result in an incredible increase in our U.S. presence," he said, noting that the company would immediately double the size of its North American customer base.

WebMethods' major customers include consumer goods company Johnson & Johnson and TD Banknorth.

The deal would add webMethods' 800 employees to Software AG's head count of 2,500, if there are no significant layoffs as a result of the merger. It also adds about $200 million in webMethods' annual revenue to the $648 million that Software AG posted in sales last year.

Streibich said he hopes to position Software AG as a credible rival to IBM and Microsoft, which dominate the high and low ends of the market for business integration software. "Customers want alternatives, and this deal makes us a more viable alternative than ever," said Streibich.

WebMethods president and CEO David Mitchell said in an interview he plans to stay on with the combined companies, though in an as yet to be determined capacity. Said Mitchell, "This is going to be a big software company that I am going to place my bets on."

While there is considerable overlap in their product lines, Software AG is known mostly for its service-oriented architecture technology -- development tools and software that allow businesses to create an IT environment in which application code can be deployed and reused whenever needed.

WebMethods is focused more on business process management software that lets companies integrate various back-office functions and also extend their internal networks to customers and trading partners through a so-called business-to-business gateway.

Streibich said he has no plans to eliminate any products at either company because of the merger.

Some analysts, however, wonder if he'll be able to stick to that pledge. "There is some significant overlap," said Gartner's Jess Thompson. In particular, there are redundancies in those parts of Software AG's and webMethods' SOA portfolios that allow users to create registries and repositories for their software components. "Something has to give," said Thompson.

The $546 million that Software AG is offering for webMethods works out to $9.15 per share, a 26% premium on yesterday's closing price for webMethods' shares. The deal has been approved by the boards of directors of both companies, but is subject to the approval of webMethods' shareholders and other closing conditions.

Software AG said it hopes to close the deal by June 2007.

The tech industry has been with rife with significant mergers of late. Last month, for instance, Pitney Bowes merged with MapInfo in a deal valued at $408 million.

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