IBM to buy Rational for $2.1bn

IBM is to buy Rational Software for $2.1bn (£1.3bn), the companies said on Friday. The deal will be IBM's largest software acquisition since it bought Lotus in 1995 for $3.5bn (£2.3bn), and is expected to be completed in the first quarter of 2003 subject to stockholder and regulatory approval.

Buying Rational will enable IBM to provide a complete software development environment for companies that want to integrate their business processes and software infrastructure with suppliers, customers and employees, said IBM in a statement.

Until the beginning of 2002, Rational had worked largely with Microsoft. But with the launch in February of its XDE Professional v2002 software development solution, it included support for both Microsoft's Visual Studio.Net development tools and IBM's rival WebSphere Studio development tools. The XDE, or extended development environment product, which helps developers see the overall design of a software development project, also supports IBM's Eclipse IDE; software based on Sun's Java technology.

Following the purchase, IBM intends to integrate Rational's products more tightly with its own software products. IBM said it would continue Rational's investment in and support for open standards technologies that support a variety of platforms, including Unix, Windows and others.

The purchase of Rational is an important part of IBM's On Demand strategy, said Steve Mills, senior vice president and group executive of IBM's software group. "Rational supports what IBM does best, which is provide infrastructure software and software tools to help our customers create a complete software development environment," said Mills. "This deal extends IBM's ability to help customers into the 'on demand' future with tools built on industry standards to develop, integrate and manage their business processes."

IBM intends to merge Rational's business operations and employees into the IBM Software Group as a new division and fifth brand, joining WebSphere, Lotus, Tivoli and DB2. When the acquisition closes, Mike Devlin will become the general manager of the new division and will report to Steve Mills.

Once the merger is complete, said IBM, the company will market and sell Rational's application development offerings worldwide through the Rational sales force, which will become part of the IBM sales force team.

Companies like BEA Systems, IBM, Microsoft and Sun have become increasingly interested in software development technology as more devices, such as PDAs (personal digital assistants) and phones, and automobiles become connected to networks, making the process more complex.

Microsoft, IBM and Sun are also embarking on new product plans to embrace Web services, which may help companies build new systems, but will require an investment in new development tools.

Rational has more than 3,400 employees and customers in 89 countries. Rational estimates that more than 600,000 software developers use its software tools.

CNET News.com's Tiffany Kary contributed to this story

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