Borland shares rise on takeover rumours

By Martin LaMonica

Borland Software shares climbed on Thursday as analysts considered whether the software company could be a Microsoft acquisition target.

Shares closed up 74 cents, or 6.4 per cent, to $12.31, on 1.8 million shares traded. A company representative when asked about the rumoured takeover said Borland would not comment on market speculation.

In the wake of IBM's $2.1bn offer to acquire Borland competitor Rational Software, analysts have speculated whether Borland would be next in line for a buyout. Whether or not another major acquisition takes place, it is clear that the software applications industry is consolidating, analysts said.

"There has never really been one stand-alone tool vendor that has been really successful. There's been a quiet consolidation going on," said Forrester Research analyst Joshua Walker, who recently wrote a research note recommending that a large application server company acquire Borland.

"All the client/server tools were snatched up, like when Sun (Microsystems) bought Forte. What's happening now is the next generation of tools will get bought as well," he said.

IBM's Rational offer could create friction between it and Microsoft. Microsoft relies on Rational's high-end application modeling tools for complex applications that bridge Microsoft and IBM software platforms. Industry analysts and IBM competitors have questioned whether IBM will maintain Rational's platform neutrality and traditionally strong partnership with Microsoft once Rational becomes part of IBM.

Press reports have also speculated that Microsoft might make a counter-offer for Rational, which IBM is offered to buy for $10.50 per share - a 28 per cent premium over its share price of last Thursday.

In October, Borland spent $185m to purchase TogetherSoft, a company which sells an application modeling tool that competes directly with Rational's products. The modeling tools complement Borland's traditional strength in programming languages and visual development tools, including Borland's Java-based JBuilder.

If Microsoft were interested in Borland, its primary focus would lie with the TogetherSoft modeling tools, said Stephen O'Grady, an analyst at RedMonk, an IT research firm in Hollis, N.H. Currently, Microsoft sells its own project management and modeling tools for less complex software development projects, and partners with Rational for projects that demand more sophisticated modeling and management.

"The TogetherSoft piece would be the most attractive addition for Microsoft and give them a real entry in the modeling space as opposed to playing catch-up," said O'Grady. "They would also get some advanced development tool functionality."

Martin LaMonica writes for News.com