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ComputerWire: IT Industry Intelligence

The acquisition spotlight fell on Microsoft Corp yesterday, as speculation swept Wall St that the company was moving against Borland Software Corp as well as Rational Software Corp to revive its application design and modeling offerings,

writes Gavin Clarke

.

Redmond, Washington-based Microsoft was reported to be preparing the acquisition of its number-one competitor in the Windows developer space, Borland. Boland itself recently bought design and modeling specialist TogetherSoft SA.

Such a deal would provide Microsoft access to TogetherSoft's resources, after IBM announced its proposed $2.1bn acquisition of independent application design and modeling specialist Lexington, Massachusets-based Rational Software earlier this month.

Microsoft, on Wednesday night, was also rumored to be preparing a counter-bid to IBM's multi-billion offer for Rational.

One ISV source, who wished to remain anonymous, said: "Don't discount the rumor [Microsoft] are mounting a competing bid. It will be an expensive counter bid."

A Microsoft source insisted the company was "in no way, shape or form" going to outbid IBM for Rational. Microsoft, meanwhile, refused to comment on a possible Borland acquisition.

Microsoft has insisted that it would not suffer from the loss of Rational to IBM, as the company has other partners in this area. Rational has been a partner of Microsoft on .NET, integrating tools such as Rose and XDE with Visual Studio.NET.

However, Borland chief executive Dale Fuller summed up the loss to the industry of Rational's independence. Borland was a Rational partner.

"As a customer, it's taken away my ability to use the industry standard development platform [Rational's Rose product]. We will continue to support [Rose] but the tight integration we could have had, we are not going to get," Fuller told a financial analysts' conference.

Microsoft's own application design and modeling portfolio is believed to have been weakened by IBM's acquisition, as this will reduce opportunities for tigher integration between Rational's and Microsoft's products.

Of equal importance to Microsoft is the loss of Rational's services arm. This $90m business was capable of advising organizations over how to design and implement scalable, enterprise-class .NET systems. Those consultants, while serving .NET inside IBM, will now be constrained when selling against Java by IBM's adherence to Java through WebSphere.

The rumors of a strike by Microsoft against Borland and Rational ignited as it emerged Microsoft may have missed out - either by design or by mistake - on the opportunity to buy Rational as recently as August.

In a Securities and Exchange Commission (SEC) filing, published yesterday, Rational said that during the midst of its discussions with IBM, company founder and chief executive Michael Devlin was contacted by telephone by representatives of a company interested in renewing earlier discussions with Rational over a possible "business combination transaction."

Rational did not name that company, referring to it simply as "Company A" but circumstantially that puts Microsoft solidly in the frame. Microsoft has told ComputerWire its executives discussed a possible acquisition of Rational to fill-out its own offerings.

The SEC filing said: "During the period thereafter and leading up to the December 6, 2002 announcement of the proposed merger with IBM, numerous conversations occurred between representatives of Company A and us or representatives of our financial advisor, Goldman Sachs. However, these conversations never resulted in a detailed discussion of proposed terms or Company A submitting a specific indication of interest.

A Microsoft spokesperson said he could not comment on the details of the SEC filing and Rational would not comment on either the filing or a possible Microsoft bid.

© ComputerWire

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