U.S. News

Software AG Snaps Up webMethods for $546 Million


Germany's Software AG plans to make its biggest acquisition in a decade by buying U.S. software firm webMethods for $546 million in cash, strengthening its position in the U.S. market.

Software AG said it would offer $9.15 per share, a 26% premium over webMethods' closing price on Wednesday, and that webMethods' board of directors would recommend the transaction to shareholders.

"It's a milestone for Software AG, for which we've been preparing for the last three or four years," Software AG's Chief Executive Karl-Heinz Streibich said, adding that the acquisition would almost double Software AG's U.S. sales.

Software AG shares touched their highest level since July 2001 and on Thursday were trading up 4.4% at 66.72 euros, one of the top gainers in Germany's TecDAX technology index, which was flat.

The CEOs of both companies told a conference call the merger would be a perfect geographic fit, doubling Software AG's customer numbers in North America while giving webMethods access to emerging markets in Eastern Europe and South America.

"It really is about a land grab in terms of market share," webMethods CEO David Mitchell said. "We now have a world-class distribution channel."

Software AG, which specializes in integration and mainframe software, had sales of $645 million (483 million euros) last year, while webMethods' revenues were about $200 million.

Combined, they will have more than 4,000 customers and 3,600 staff. Streibich said sites would be maintained and expanded at Software AG's headquarters in Darmstadt, Germany and webMethods' base in Fairfax, Va., and that no job cuts were planned.


The acquisition will depress Software AG's profit margins slightly in the short time as earnings per share should remain stable while sales rise, Software AG Chief Financial Officer Arnd Zinnhardt said.

"We expect this transaction to be strongly accretive to Software AG's operating earnings from 2008 onwards," he said.

The two companies said that together they aimed to become a market leader in service-oriented architecture, which loosely groups together independent software services that can access a common network.

The deal is expected to close during the second quarter.