Cognos shares climb on IBM merger news; E*Trade stock plummets

By Sheri Kasprzak

New York, Nov. 12 - Even though shares of Cognos Inc. were up on Monday on news that IBM Corp. will purchase the company in a $5 billion all-cash transaction, IBM's stock took a dip before rebounding.

Still, one analyst said the move is positive for IBM.

"It's [Cognos] a company they've worked with for a long time so it's not like they just jumped," he said. "It's consistent with IBM's strategy, it's a profitable name [Cognos], and I think it will work out well."

"The acquisition of Cognos supports IBM's Information on Demand strategy, a cross-company initiative announced on Feb. 16, 2006, that combines IBM's strength in information integration, content and data management and business consulting services to unlock the business value of information," a statement from IBM said Monday.

"Integrating Cognos, the 23rd IBM acquisition in support of its Information on Demand strategy, will enable new business insights to be delivered to a broader set of people across an organization, beyond the traditional users of business intelligence."

In pre-market action, shares of Cognos were up almost 7.6%, or $4.04. The stock went on to gain $4.17, or 7.87%, to end at $57.15 (Nasdaq: COGN).

IBM's stock gained $1.20, or 1.19%, to close at $101.45 (NYSE: IBM). The stock gained another 93 cents after the market close. Shares of IBM were off early in the session.

In other news, E*Trade Financial Corp. watched its stock lose more than half of its value Monday after the company said it expects to make write downs. The company reported that the fair value of its asset-backed portfolio has been negatively impacted by industry-wide rating agency downgrades.

Shares of E*Trade ended the day down $5.04, or 58.67%, to close at $3.55 (Nasdaq: ETFC). The stock did start to make a comeback in after-hours trading, gaining 3 cents.

"Write downs are a way of life," said one sellside trader. "In this market, it really isn't surprising. I think most banks are going to have to suffer for a while."

IBM to buy Cognos

Moving back to IBM's purchase of Canadian software company Cognos, IBM plans to buy all of Cognos's shares at $58 per share in a $5 billion all-cash transaction.

Cognos's shareholder must still approve the transaction, but a statement from both companies released Monday said the deal is expected to close in the first quarter of 2008.

Once the deal is settled, IBM will integrate Cognos as a group within its Information Systems Management division, focused on business intelligence and performance management.

"Customers are demanding completion solutions, not piece parts, to enable real-time decision making," said Steve Mills, senior vice president of IBM Software Group, in the statement.

"IBM has been providing business intelligence solutions for decades. Our broad set of capabilities - from data warehousing to information integration and analytics - together with Cognos positions us well for the changing of its industry-leading technology that is based on open standards, which complements IBM's service-oriented architecture strategy."

"This is an exciting combination for our customers, partners and employees," said Rob Ashe, chief executive officer of Cognos, in a statement.

"IBM is a perfect complement to our strategy, with minimal overlap in products, a broad range of technology synergies and the resources, reach and world-class services to accelerate this vision. Furthermore, this combination allows Cognos customers to leverage a broader set of solutions from IBM to advance their information-management driven initiatives."

E*Trade shares dive

Shares of E*Trade took a major slide on Monday after the company said its $3 billion asset-backed securities portfolio's fair value sank after industry-wide rating agency downgrades after the end of the third quarter.

The securities mostly impacted are in the ABS CDO and second-lien securities sector. Total exposure to these areas was $450 million in amortized cost, including $50 million in triple-A rated asset-backed CDOs that were downgraded to below investment grade, a statement from E*Trade said Monday.

"Management believes that the additional deterioration observed since Sept. 30 will likely result in write downs that exceed the previous expectations included in the company's 2007 earnings outlook updated on Oct. 17, and investors should no longer expect these earnings levels to be achieved," said the statement.

"Actual securities-related losses will depend on future market developments, including potential for future downgrades by rating agencies, which are extremely difficult to predict in this environment. Accordingly, management believes it is no longer beneficial to provide earnings expectations for the remainder of the year."

Microsoft may buy Musiwave

Elsewhere, Microsoft Corp. said Monday it signed an exclusivity agreement to acquire Musiwave SA, its leading competitor in mobile music entertainment services.

If the acquisition proceeds, a statement from Microsoft said Monday, Musiwave will continue to operate out of its Paris headquarters.

"Microsoft and Musiwave share the same philosophy in working with hardware and mobile operator partners to deliver great experiences for mobile device users," said Pieter Knook, senior vice president of the Mobile Communications business at Microsoft, in a statement.

"Bringing Musiwave on board would provide an opportunity for Microsoft to explore new areas in the mobile space previously untapped, and to showcase the power of software plus services. This contemplated acquisition reflects Microsoft's recognition of the software and technology expertise in Europe."

Shares of Microsoft were down on Monday by 35 cents to end at $33.38 (Nasdaq: MSFT).

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