IBM makes Rational purchase for $2.1 billion

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IBM has swooped to purchase Rational Software for $2.1 billion to beef up its plans for on-demand computing, whereby users can access computer resources like a utility.

Rational Software, which has 3,400 employees and clients in 89 countries, will be absorbed into IBM. Rational Chief Executive Michael Devlin will serve as general manager of a new IBM unit. The deal is expected to close in the first quarter of next year.

"This acquisition allows us to focus on end-to-end application development and process integration that our customers want," said Steve Mills, senior vice president of the IBM software group. "This is a great marriage of two very strong technology companies."

IBM's purchase follows a 20-year alliance, says Rational President Tom Bogan. "We see this as a way to extend our long partnership with IBM to provide deeper software integration, which means more complete solutions for our mutual customers," he said.

The takeover occurs a week after Rational settled an investor lawsuit over its purchase of Catapulse, a start-up run by Devlin and Rational Chairman Paul Levy. The suit claimed that Rational's directors breached their financial duties by investing in, and later buying, Catapulse. Rational agreed to pay $2.7 million in legal fees and to strengthen its corporate governance policies to settle the suit.

Rational makes a suite of products that help programmers build, link, configure and test new software applications. The IBM purchase price is virtually equal to Rational's market cap of $2 billion. Rational sales reached $815 million last year, but revenues are expected to slip to $690 million this year.

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