TORONTO - International Business Machines Corp. is offering US$5 billion for Canada's largest independent software company, Cognos Inc. (TSX:CSN), in a further consolidation of the industry that gives IBM a boost in the "business intelligence'' field.
The companies said Monday the friendly combination will values Ottawa-headquartered Cognos at US$58 per share in cash. That's above Friday's closing price of US$52.98 on Nasdaq and C$50.02 on the Toronto Stock Exchange.
Cognos shares gained $5.34 to trade at C$55.36 in Toronto and US$4.43 to $57.41 on Nasdaq at midday Monday, following IBM's takeover announcement.
It follows similar moves in the same market, in which German software giant SAP AG recently linked up with France's Business Objects SA for $6.78-billion and California-based Oracle Corp. grabbed Hyperion Solutions Corp.
Meanwhile, Open Text Corp. (TSX:OTC) of Waterloo, Ont. acquired Toronto-based rival Hummingbird Ltd. last year to solidify its position as the largest independent vendor in of enterprise content management software.
Paradigm Capital Inc. analyst Gabriel Leung said the Cognos-IBM deal is a good match and shareholders are likely to tender to it.
"IBM was the company a lot of people were thinking was going to take out Cognos because of their close working relationship in the past,'' he said.
"Valuation-wise it's pretty good,'' Leung added. "It's very unlikely we'll see another suitor come in and try to scoop IBM on this transaction.''
IBM and Cognos have partnered for more than 15 years, with extensive technical integrations and eight integrated solutions already supporting many joint customers, such as New York City Police Department, Blue Cross and Blue Shield of Tennessee, Canadian Tire, MetLife, and Bayer UK.
Rob Ashe, president and chief executive officer of 4,000-employee Cognos, called the deal "an exciting combination for our customers, partners, and employees.''
The takeover, endorsed by the Cognos board and expected to close early in 2008, comes barely two weeks after Cognos closed its acquisition of Massachusetts-based Applix Inc.
For Armonk, N.Y.-headquartered information technology giant IBM, it's the 23rd acquisition in its so-called information on demand strategy, combining information integration, data management and business consulting services.
Business intelligence software helps organizations gather and analyze data from across their organizations, whether for modelling the financial impact of strategic decisions or making staffing changes.
"Customers are demanding complete solutions, not piece parts, to enable real-time decision making,'' stated Steve Mills, senior vice-president and group executive of the IBM software group.
"The big thing driving this (for Cognos) is that companies are reducing the number of vendors they're dealing with, so if you're not one of those people it's really difficult to continue to grow,'' said Peter Misek, an analysts with Canaccord Adams.
"For IBM, what they're looking for is higher-value solution sets they can sell.''
Among Canada's remaining independent technology companies, Open Text was up $1.71 or 5.4 per cent at $33.15, while Nortel Networks Corp. (TSX:NT) rose $1.17 or seven per cent at $17.96.
Misek said he didn't think the rise in Open Text's stock stemmed from the Cognos deal, since that company had unsuccessfully sought buyers last year. He said Monday's rise in the sector was most likely a bounce back from dismal performance in the previous week.
Several observers also pointed Monday to the fact that the deal was happening despite the rising loonie, which is making Canadian companies more expensive to buy.
"Obviously (the loonie) doesn't play in as much as people thought, otherwise this deal wouldn't have happened,'' Misek said.
"Currency moves happen in waves and in cycles, and it's quite possible that in three years you'll see that the US dollar is much stronger than here. If IBM is buying for the longer term and not buying for tomorrow, I don't think that that should be an issue for them.''
IBM said it plans to integrate Cognos into its information management software division, with Ashe leading the group, and isn't expecting job cuts.
"We consider Cognos employees to be a critical asset and we will do whatever's possible to preserve that,'' said IBM spokesman Chris Andrews.
