Nov. 12 (Bloomberg) -- International Business Machines Corp. agreed to buy Cognos Inc. for $4.9 billion, its largest acquisition, to compete with Oracle Corp. and SAP AG in providing software that tracks corporate performance.

IBM, the world's second-biggest software maker, will pay $58 a share in cash for Cognos, or 9.5 percent more than the closing price Nov. 9. Cognos's so-called business-intelligence programs help companies monitor data on budgets and inventory and analyze whether they are meeting targets.

SAP and Oracle snapped up Cognos's two largest rivals this year to win more sales in a faster-growing area of software, pushing IBM Chief Executive Officer Samuel Palmisano to follow suit. Cognos's license sales climbed 12 percent last quarter, almost twice the pace of growth for IBM's software unit.

``This is something they had to do,'' Rob Enderle, president of the San Jose, California-based research firm Enderle Group, said in an interview. ``The acquisition allows IBM to follow a series of acquisitions made by others. It makes it look like they are keeping up.''

IBM, based in Armonk, New York, rose $1.20 to $101.45 at 4 p.m. in New York Stock Exchange trading. Ottawa-based Cognos climbed $4.17 to $57.15 on the Nasdaq Stock Market. Its shares have advanced 35 percent this year, partly on speculation of a takeover bid.

Microsoft Corp., the world's largest software maker, may make a bid to ``keep IBM out of the space'' and compete with Oracle, Enderle said. Bill Cox, a spokesman for Redmond, Washington-based Microsoft, didn't immediately return a call seeking comment.

Past Acquisitions

Cognos, Canada's biggest software company, is IBM's first purchase of more than $1 billion since the October 2006 acquisition of Internet Security Systems Inc., which cost about $1.3 billion.

IBM's offer is about 23 times Cognos's fiscal 2009 earnings, compared with 25 times for SAP's acquisition of Business Objects SA in the comparable period, according to Roth Capital Partners' Nathan Schneiderman. The Newport Beach, California-based analyst termed that ``a pretty good price.'' He advises investors to hang on to Cognos shares.

``I'll take what I can get,'' said Peter Hodson, who helps manage the equivalent of about $6.44 billion, including Cognos stock, as a senior portfolio manager at Sprott Asset Management Inc. in Toronto. ``There's a slim chance of another bid. Who wants to get into a bidding war with IBM in this kind of market?''

Rivals' Purchases

SAP agreed to buy Cognos's larger rival Business Objects last month for 4.8 billion euros ($7 billion). Oracle acquired Hyperion Solutions Corp. for about $3.3 billion in April.

With Cognos, IBM has spent about $15 billion since 2001 to build up the software unit, whose profit margins are almost twice as high as those for the rest of the business. Palmisano has sharpened his focus on software since selling IBM's printing unit and the personal-computer division over the past two years.

The software division's sales rose 6.5 percent last quarter and accounted for about a fifth of the total, IBM said last month. Gross margin, or the percentage of sales left after production costs, was 84.2 percent in software, compared with 41.3 percent over all.

Cognos counts Boeing Co. and Bank of America among its customers for its business-intelligence programs. The global market for that type of software equaled about $4.7 billion last year and will grow 8.6 percent a year over the next five, according to Gartner Inc.'s Colleen Graham. The Tucson, Arizona- based analyst said that compares with 7.5 percent growth in enterprise software.

Cognos's Roots

The company is the world's second-largest maker of business- intelligence software, ahead of Hyperion. Cognos was founded in 1969 as a computer consultant to Canada's government, and began switching its focus to business intelligence in the 1980s. Cognos had almost $1 billion in sales last year.

The company and IBM already had an alliance where they served customers such as the New York City Police Department and Canadian Tire Corp., working together for more than 15 years, according to a statement today.

The purchase ``is an easy fit and a great addition,'' Steve Mills, head of IBM software, said in a telephone interview. ``IBM has a large business around data warehouse, data intelligence and real-time analytics.''

IBM will fold Cognos into its Information Management Software division, which Cognos CEO Robert Ashe will run. The companies expect the transaction to close in the first quarter.

Over that time, IBM will decide whether to pay for Cognos with cash on hand or with a combination of cash and corporate debt, spokesman James Sciales said in an e-mail. Both companies declined to comment on who advised them on the transaction or whether Cognos will pay IBM a fee if it fails to go ahead.

To contact the reporter on this story: Chris Fournier in Montreal at Cfournier3@bloomberg.net; Matthew R. Miller in Atlanta at mmiller31@bloomberg.net

Last Updated: November 12, 2007 16:05 EST