By Franklin Paul
NEW YORK (Reuters) - IBM (IBM.NY)
Shareholders of SPSS, which provides predictive software and services to help companies forecast trends and spot shifts in consumer patterns, would receive $50 a share, a 42 percent premium to Monday's closing price.
The proposed acquisition, announced on Tuesday, follows a spate of deals in recent years in the business intelligence sector, such as Oracle's purchase of Hyperion, SAP's acquisition of Business Objects and International Business Machines Corp's own deal for Cognos.
Other names in the arena include MicroStrategy Inc
"We're in a period where consolidation seems to be a rule of the game," said Charles King, an analyst with Pund-IT Research. "SPSS was probably fine on its own as an independent company, but IBM provides the distribution and stability, the economics and technology foundation."
Shares of Chicago-based SPSS, a pioneer in business intelligence, jumped $14.21 or 40.5 percent to $49.30. The stock had already risen 30 percent this year.
UBS analyst Maynard Um estimates that SPSS could add 3 cents a share to IBM's 2010 earnings, but said in a note to clients that the greatest gain may lie in deeper penetration into the analytics market.
"We believe actual benefits may prove greater as the deal adds to IBM's business and predictive analytics portfolio, which will be an essential part of IBM's smarter business systems and which the company has identified as a significant growth opportunity over the next few years," he said.
IBM said the deal would help expand its Information on Demand software portfolio and business analytics capabilities. Such intelligence, combined with IBM's existing software and consulting skills, can help in preventing fraud or a likely pandemic.
For example, Credit Suisse uses SPSS software to analyze information about its customers, then gives leads to its sales force. Police use these systems to mine data from incident reports to predict patterns of criminal behavior.
"The environment today is focused on sense and respond: what's happening and what we should do about it," said Ambuj Goyal, general manager of information management software at IBM. The acquisition of SPSS, he said, would help it move to "predict and act."
IBM AND ACQUISITIONS
IBM already sells SPSS software as part of its offerings. An acquisition, Goyal said, would help IBM integrate SPSS software into its other analytics products, making it easier for mutual customers to use. Many don't want to install SPSS themselves, but do want a packaged product that is easy to adopt without the help of a third party.
IBM has spent $20 billion buying more than 100 companies since 2000, paying prices that range from as little as $50 million to as much as $5 billion.
The deal values SPSS at about 25 times analysts' estimated 2010 earnings per share, and the $50-per-share price tops the all-time high for the stock of $47.87.
"The predictable analytics area is a really hot area, and I would think that companies in that would trade at a premium to companies in other areas of technology," said Standard & Poor's technology analyst Tom Smith.
"I think they paid a lot for it but it's not unreasonable. They are paying cash, but in terms of cash management, IBM is not going to break too much of a sweat," he said.
The deal, which includes a fee of $23.5 million that SPSS would have to pay should the merger fall through, is subject to SPSS shareholder approval and regulatory clearances, and is expected to close later in the second half of 2009, the companies said.
Separately, IBM said it has acquired closely held Ounce Labs Inc, whose software helps companies reduce the risks and costs associated with security and compliance concerns. Financial terms were not disclosed.
IBM shares fell $1.05, or 0.9 percent, to $116.58 on the New York Stock Exchange.
(Reporting by Franklin Paul; Additional reporting by Ritsuko Ando and Jim Finkle in Boston; Editing by Derek Caney, Gerald E. McCormick and Richard Chang)
