IBM Buys Sterling Commerce

IBM will buy B2B software company Sterling Commerce from AT&T for $1.4 billion. Bloomberg Businessweek has more:

IBM Chief Executive Officer Sam Palmisano has said he plans to spend $20 billion on takeovers in the next five years as he aims to bolster the software business, IBM’s most profitable. Profit margins in software amounted to 84.6 percent last quarter, more than twice as big as in the hardware business.

The transaction will likely close in the second half of 2010, the companies said. AT&T probably will record a pretax gain of $750 million on the transaction once it’s completed.

MarketWatch adds:

(Sterling’s) “business-to-business” software is used to automate processes such as the purchase or raw materials or the replenished of depleted inventory. About 80% of the Fortune 500 companies are clients, though revenue is less than $1 billion annually.

AT&T’s forerunner company, SBC Communications, bought Sterling at the height of the dot-com bubble in 2000 for $3.9 billion in stock. That puts the sale price to IBM 64% lower compared to what AT&T /quotes/comstock/13*!t/quotes/nls/t (T 24.54, -0.31, -1.25%) paid for the company a decade ago.

The two companies expect the deal to be completed in the second half of the year, with 2,500 Sterling employees to be transferred to IBM. The Sterling unit will be “integrated” into IBM’s WebSphere organization in the parent company’s software group.