IBM Agrees To Buy Columbus based AT&T's Sterling Commerce For $1.4B - WSJ.com

UPDATE: IBM Agrees To Buy AT&T's Sterling Commerce For $1.4B - WSJ.com

Roger Cheng    Of DOW JONES NEWSWIRES  

NEW YORK (Dow Jones)--International Business Machines Corp. (IBM) agreed to acquire business-to-business services provider Sterling Commerce from AT&T Inc. (T) for roughly $1.4 billion in one of its largest deals in nearly three years.

IBM, based in Armonk, N.Y., has stated an intent to be more acquisitive, having spent nearly the same amount on deals in the first quarter as it did last year. The company said it would spend $20 billion on acquisitions by 2015, underscoring the need to compete against other tech giants, which have been eager to scoop up businesses to widen their own product offerings and reach. IBM has more recently pushed into the software business, which has been the most profitable and fastest growing segment.

The Sterling deal ranks among the highest in recent years. IBM previously spent $922.5 million on SPSS Inc. last year, and $4.71 billion on Cognos at the end of 2007. Sterling gives IBM a presence in the business-to-business market with business integration services, supply chain software and other customer service products, as well as 18,000 clients from a wide swath of different industries.

The transformation is seen as necessary as IBM competes with other tech heavyweights, including Hewlett-Packard Co. (HPQ) and Cisco Systems Inc. (CSCO), each getting into new businesses that put the players at odds with each other. Overseas, business software giant SAP AG (SAP) has also been aggressive on the acquisition front, including the recent agreement to buy mobile systems vendor Sybase Inc. (SY) for $5.8 billion.

Craig Hayman, general manager of IBM's WebSphere business, said the "acquisition will give IBM new tools to help clients build dynamic business networks that connect" software across different servers. "In addition, the fact that much of this can be done in the cloud will make it compelling to large numbers of our customers." Cloud computing is a fast-growing segment of the software industry in which applications can be accessed online as opposed to company-specific systems.

Sterling has about 2,500 employees will be integrated into IBM's WebSphere unit. The purchase is set to close in the second half of the year.

The push to software followed IBM's move into consulting and away from the hardware businesses. The company dumped its personal computer business in 2004 to Lenovo Group Ltd. (0992.HK, LNVGY).

AT&T expects to record a $750 million gain on the deal.

IBM shares rose slightly to $125.44 in early trading, while AT&T shares fell 1.7% to $24.42. Stocks were mixed.

-By Roger Cheng, Dow Jones Newswires; 212-416-2153; roger.cheng@dowjones.com

(Tess Stynes contributed to this report.)