IBM to Pay $1.4 Billion for AT&T's Sterling Commerce


IBM (IBM) has announced a $1.4 billion deal for e-business software provider Sterling Commerce, a division of AT&T (T).

The equities markets may be volatile and the global economy fragile but such matters seem to be of little concern to billion-dollar deal-makers in the tech sector. In the past few weeks alone, Hewlett-Packard (HPQ) agreed to purchase Palm (PALM) for $1.2 billion and Symantec (SYMC) struck a $1.28 billion deal for the security business of VeriSign (VRSN). And on Monday IBM joined the party.

A Sterling Deal

Founded more than 30 years ago, Sterling Commerce has built an extensive technology platform that helps companies connect, communicate and collaborate securely. Ultimately, this helps to streamline the process of selling and fulfilling business with any channel or supplier. Yes, such things are vitally important in today's fiercely competitive environment, and Sterling has more than 18,000 customers across the world, including over 80% of the Fortune 500 companies.

It was in 1999 that SBC Communications -- which is now AT&T -- paid a whopping $3.9 billion for Sterling Commerce. Since then, the software operator has made a variety of acquisitions, including USinternetworking and Comergent Technologies. All in all, the deals have allowed for successful expansion of the product portfolio. Perhaps some of the most important capabilities include web-based technologies.

Despite its success, Sterling Commerce has really not been a good fit for AT&T, which needs to focus on its mobile and broadband business. Interestingly enough, the deal will result in a pre-tax gain of roughly $750 million.

As for IBM, it is certainly picking up a choice asset. No doubt, the company realizes that its customers need better ways to interact and communicate. At the same time, IBM can bring better focus and synergies with its massive global customer base. For example, there should be strong cross-selling opportunities with the middleware business. (Sterling Commerce will become part of the WebSphere division within IBM's Software Group).

Sterling Commerce will also provide heft with distribution. The company has a diverse customer base in industries that include finance, retail, manufacturing and communications.

Finally, IBM has had success with software deals and knows that the margins are fairly strong, especially compared to the hardware segment. So it should be no surprise that the company intends to spend $20 billion on software mergers over the next five years.