Progress to buy Neon for push into mainframe market

Middleware vendor Progress Software is to acquire mainframe integration software firm Neon Systems for around US$68 million, the companies announced Tuesday. Progress is hoping the purchase will let it target big-iron users in the high-growth areas of service-oriented architecture (SOA) and real-time event stream processing.

Under the terms of a definitive agreement signed by Progress and Neon, a wholly owned Progress subsidiary, Noble Acquisition, will make a cash tender offer for all outstanding shares of Neon common stock on or before Dec. 30. The deal values Neon stock at US$6.20, putting a premium on the deal of roughly 46 percent compared to the company's performance over the previous 30 days.

Neon shares (ticker symbol: NEON), which finished trading Monday at US$4.35, climbed on the news of the acquisition to reach a Tuesday mid-afternoon high of US$6.14. By contrast, Progress shares (PRGS) fell 11 percent in Tuesday mid-afternoon trading to US$27.75 down from an opening price of US$31.19.

Assuming the deal proceeds as planned, Neon will become part of another Progress operating unit, DataDirect Technologies, which specializes in data connectivity. DataDirect provides database drivers to relational database management systems from Oracle, IBM, Microsoft and Sybase as well as Progress' own OpenEdge software. The inclusion of Neon's software will let DataDirect provide links into mainframe databases including DB2, IMS/DB and CA-IDMS.

Both the boards of Progress and Neon have already unanimously approved the deal. Subject to the usual regulatory conditions, the companies hope to close the merger in the first quarter of 2006 provided at least 90 percent of Neon's then-outstanding stock is tendered. So far, the holders of 44 percent of Neon's outstanding common stock have agreed to tender their shares in relation to the offer from Progress.