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IBM Follows Rivals' BI Moves With $5B Cognos Bid

IBM made a significant move to shore up its database line with today's announcement of a $5 billion all-cash deal to acquire Ottawa-based Cognos.

The deal had been expected following moves by Oracle and SAP to acquire their own business intelligence companies. Just last month, SAP announced its intent to buy Business Objects in a $6.7 billion deal. In March, Oracle announced a $3.3 billion purchase of Hyperion Solutions.

IBM will pay $58 per share for Cognos with a net transaction value of $4.9 billion. Assuming regulatory approval, the deal isn't expected to be completed until the first quarter of 2008.

Steve Mills, IBM senior vice president of software, said both companies share a lot of the same customers and have worked together for years. It was "an obvious move for two companies to come together," Mills said in a conference call for the announcement. "A good use of cash that will drive more growth for IBM over time. We're excited about how it matches with the rest of our middleware technology."

Gartner analyst Colleen Graham said the Cognos buy will let IBM enhance its DB2 database with additional analytical features, much as Oracle has been able to do with its purchase of Hyperion.

While business intelligence used to be a kind of "neutral zone" provided by independent software providers, "the market for pure play BI providers is toast," Graham told InternetNews.com. "The whole territory is going away. We've been telling IBM they need to make an acquisition in the BI space for 18 months now."

Mills said buying Cognos will help Big Blue address a shift it's been seeing among its customers.

"We've been watching for a number of years an increasing shift toward a real-time, prospective approach to business analysis, business optimization and performance management."

Where IBM has long helped its own data warehouse customers analyze massive amounts of historical data to make decisions, he said BI tools like those Cognos develops are designed to help businesses make decisions on-the-fly and adjust operations for better top-line growth.

"And this is heterogeneous data, not just numeric, but also textual data customers want to view in real time," said Mills. Like Business Objects and others, Cognos helps companies sift and organize the data in very customizable reports to help with decision making.

Cognos CEO Rob Ashe said on the call that his company wasn't looking to sell, but that going with IBM offered some unique advantages, such as IBM's considerable resources and global reach.

Ashe also noted Cognos won't be distracted by potential conflicts of its new owner's product portfolio. "There's virtually no product overlap so we can focus on innovation right out of the gate," he said.

Both Mills and Ashe were optimistic nothing would change in terms of support for competing hardware and software vendors. "Cognos is open standards-based. It takes a strong enterprise, end-to-end view," said Mills.

Analyst Graham said if nothing else, IBM has helped ensure it keeps its database customers from straying elsewhere in search of BI solutions, but the deal also has a big upside.

"IBM still looks like the good guy alternative because I really don't think they want to control a customer's whole software stack. Companies like Oracle are more 'Buy our middleware, buy our database and we'll also provide OS support.'"

Cognos is no stranger to big software acquisitions.

As recently as September, the company paid $339 million to acquire Applix and its TM1 multi-dimensional Online Analytical Processing (OLAP)  server. Applix offers financial performance management tools that complement the Cognos 8 business intelligence application suite.

Also, in January Cognos purchased Celequest, which lets customers access business intelligence capabilities through a hardware appliance and as software-as-a-service (SaaS).

Erin Joyce, executive editor of InternetNews.com, contributed to this report.