IBM's largest acquisition ever: $5 billion deal for Cognos

Big Blue’s acquisition of Ottawa, Canada-based Cognos would follow similar moves in the same market this year. SAP AG recently linked up with Business Objects for $7 billion and Oracle grabbed Hyperion Solutions for $3.3 billion. Cognos shares had soared recently on expectations that it, too, would be acquired. They jumped another 8 percent on Monday’s news. Business-intelligence software helps big organizations gather data in dashboards which can be used to model such things as the financial impact of staffing changes or marketing moves. Because this capability meshes with other things business software does, big vendors such as SAP, Oracle and IBM have moved to include business-intelligence applications in their product packages. The challenge is technically to integrate business-intelligence offerings in a way which is easier and less expensive for customers. David O’Connell, a senior analyst with Wellesley, Massachusetts-based Nucleus Research, said he was skeptical that will happen with IBM and Cognos. “I’m not sure it will become more than a bolt-on,” he said. Forrester Research’s Paul Hammerman agreed that it could take time for IBM to produce compelling technological linkages, but he added, “I don’t see any downside for customers.” IBM and Cognos already had a business partnership.

IBM has been on a buying spree in recent years to build out its software portfolio, because software generates much fatter profit margins than IBM’s sprawling technology-services business. IBM had been primarily a provider of middleware, which connects different kinds of software applications, but its recent push has led the company to expand more into the business of selling applications as well. Steve Mills, the head of IBM’s software group, said acquiring Cognos was not prompted by rivals’ deals. “We never do acquisitions on defensive moves or based on what others are doing,” Mills said in an interview. IBM is offering $58 per share for Cognos, a 9 percent premium over the U.S.-listed company’s $52.98 closing price on Friday. Cognos was trading in the mid-$40s before SAP’s bid for Business Objects was announced in October, accelerating expectations for consolidation in business-intelligence software.

The biggest previous acquisition for Armonk, New York-based IBM was its $4 billion purchase of the consulting division of PricewaterhouseCoopers in 2002. Cognos will be added to IBM’s information management software division. Cognos CEO Rob Ashe is expected to remain and report to the group’s head, Ambuj Goyal, after the deal is completed in the first quarter of 2008. Founded in 1969, Cognos has 4,000 employees worldwide and U.S. headquarters in Burlington, Massachusetts. It earned $116 million on $979 million in revenue in its last full fiscal year.