IBM commenced a $340 million cash tender offer to acquire French software maker ILOG, which the company hopes to leverage to boost its presence in the lucrative business process management (BPM) market.

IBM's subsidiary Citloi SAS is offering €10 or $13.70 for each ILOG share in France and its American depositary shares held in the US. Both offers are expected to end on 17 November.

BPM software is used in planning, monitoring and analysis of business processes such as billing, distribution and marketing. It is seen as a way for companies to streamline internal systems and improve customer service.

BPM is a great prospect for companies trying to stretch their dollars as the economic downturn tightens tech spending worldwide. In their endeavour to wring as much value as possible out of their existing IT hardware, IT research firm IDC has estimated that the BPM market is growing at around 44 per cent per annum, and could be valued at $5.5 billion by 2011.

IBM's ILOG acquisition has been cleared as per the Hart-Scott-Rodino Antitrust Improvement Act of US and authorised by the French Minister of Economy. It is subject to European antitrust regulations and to the condition of expiry of the offers.

In a statement, ILOG said that through the proposed transaction, IBM aims to combine its business process management (BPM), business optimisation, and service oriented architecture (SOA) technologies with ILOG's Business Rules Management Systems software.

ILOG says this would enable IBM to help clients deliver critical business information in real-time, allowing them to make better business decisions faster. When completed, the acquisition of ILOG will strengthen IBM's BPM and SOA businesses by providing customers a full compliment of rule management tools for complete information and application lifecycle management across a comprehensive platform including IBM's leading WebSphere application development and management platform.

"Companies across all industries are looking for technologies to help them manage their processes with more flexibility so they can keep up with changing business conditions," said Tom Rosamilia, general manager, IBM WebSphere.

"ILOG's software allows businesses to more effectively manage and automate the decision making process, giving companies an opportunity to react with incredible speed and accuracy. IBM has partnered with ILOG for over a decade, and by adding ILOG's capabilities to IBM's software portfolio, this is a great combination to provide value to our clients."

The offer amounts to an aggregate purchase price of approximately €215 million, or $340 million on a fully diluted basis, representing a premium of approximately 56 per cent compared to ILOG's one month average of closing share prices prior to 28 July, 2008, and a 37 per cent premium to the closing price of Friday, 25 July.

ILOG's board of directors has approved the transaction and is expected to give a final recommendation prior to 15 September, subject to the receipt of a satisfactory fairness opinion regarding the financial terms of the offer. Thereafter, the offer would be filed with the French stock exchange authority (AMF).

ILOG's statement said that IBM has received commitments from certain shareholders to tender their shares to the contemplated offer, which represent approximately 10 per cent of ILOG's issued share capital.

More on BPM
BPM enables companies to model, automate, monitor, and redesign business processes, such as opening a bank account, documenting a medical record, or customizing an insurance policy.

It enables companies to improve customers' service and increase efficiency, automation and accuracy. Using BPM, companies can examine tasks within an organisation, particularly those done manually or involving significant document processing, and apply BPM to automate or streamline them.

Such processes are becoming increasingly critical as business operations become more complex and information volumes grow at phenomenal rates.

For example, a business rule might be applied to elevate a premier customer to the front of a phone queue as part of a customer service process.

ILOG's Business Rule Management System provides users with tools that allow greater control over the criteria that determine how and when to route those premier customers. As such, businesses can accelerate the process of initiating policy changes that may be driven by market trends or competitive activity to ensure customer satisfaction is maintained.

In its statement, ILOG's chairman and CEO Pierre Haren said, "We are very excited about this opportunity to join a world leader such as IBM, a long valued partner with shared core values. This combination will allow us to dramatically extend our market reach and realize the full potential of all of our technologies while protecting investments of ILOG's customers now and into the future."