NEW YORK (CNN/Money) -
IBM said Friday it has agreed to acquire software development firm Rational Software Corp. for $2.1 billion cash, or $10.50 per share.
Armonk, N.Y.-based IBM said it plans to merge Cupertino, Calif.-based Rational's business operations and more than 3,400 employees into its software group as a new division and its fifth brand.
"Rational (RATL: up $2.08 to $10.25, Research, Estimates) helps software developers around the world write software faster, with less risk, and can help produce a higher return on investment," Rational CEO and co-founder Michael Devlin said.
Devlin will become general manager of the new division and will report to Steve Mills, IBM's vice president and executive of software.
IBM (IBM: down $1.18 to $81.88, Research, Estimates) said the acquisition will reduce its 2003 earnings by pennies per share. The company added that it expects the transaction to have a neutral impact on 2004 earnings and add to earnings thereafter.
The average Wall Street estimate for IBM's 2003 earnings is $4.31 a share, with estimates ranging from $4.11 to $4.60, according to First Call. The average First Call 2004 estimate is $5.06.
The companies said they expect the acquisition to close in the first quarter of 2003.
--from staff and wire reports
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