updated 8/10/2006 9:05:15 AM ET 2006-08-10T13:05:15

IBM Corp. took another step to build out its software portfolio Thursday by announcing a $1.6 billion acquisition of FileNet Corp., which helps companies route data through business applications.

The all-cash deal values FileNet at $35 a share, a slim premium to FileNet’s $34.65 closing price on the Nasdaq Stock Market on Wednesday. If shareholders approve, the deal would close in the fourth quarter.

IBM’s software division, the Armonk, N.Y.-based company’s most profitable unit, has been boosted by 20 acquisitions since 2001 as IBM has sought to become an all-purpose manager of “information on demand” for its customers.

This marks IBM’s second sizable software acquisition in a week. On Aug. 3 IBM agreed to spend $740 million in cash on MRO Software Inc., a niche provider of software that helps industrial companies track their physical assets.

Costa Mesa, Calif.-based FileNet was founded in 1982 and says three-fourths of the Fortune 100 have been its customers. With 1,700 employees and $422 million in 2005 revenue, FileNet has a key presence in the “enterprise content management” market, which IBM expects to grow more than 10 percent annually over the next five years. Key competitors include Oracle Corp. and EMC Corp.

IBM plans to combine FileNet’s operations, employees and executive team with its own content management group.

FileNet stock had zoomed to 52-week highs in the past week. FileNet had been rumored to be an acquisition target, though CEO Lee Roberts also had recently suggested the company was considering making acquisitions of its own to strengthen its competitive position.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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