updated 6/9/2005 5:15:45 PM ET 2005-06-09T21:15:45

Software company Computer Associates International Inc. on Thursday said it has agreed to pay $350 million in cash to acquire Niku Corp., a maker of information technology management and governance software.

The acquisition will give Computer Associates, one of the world’s largest business software companies, a foothold in the fast-growing market for information technology governance, which the company said is expanding faster than the overall software industry.

Niku, based in Redwood City, Calif., makes software that integrates and automates services like research and development, billing and marketing across different departments in large companies.

Under terms of the transaction, Computer Associates said it would pay $21 per share for Niku, representing a premium of 27 percent over Niku’s Wednesday closing price.

Analysts called the deal a positive move for Computer Associates. Niku’s main software product, Clarity, gives information technology managers real-time views into their company’s portfolio of IT investments. The product also makes it easier for managers to comply with Sarbanes-Oxley rules, which raised the standards for financial reporting and corporate disclosure.

“Computer Associates can now deliver solutions that can help customers comply with Sarbanes-Oxley faster and cheaper, since Niku’s software automates these processes for companies,” said Trip Chowdhry, software analyst at FTN Midwest Research in Cleveland. With Niku, “they’ve gone and captured information technology spending on automated compliance software,” which represents a growing portion of overall corporate spending, Chowdhry added.

Niku is the latest acquisition for Computer Associates, which has a history of being among the most acquisitive technology companies. Since March 2004, the Islandia, N.Y.-based company has acquired five companies, most recently Concord Communications in March for $350 million.

The deal is expected to close within three months, pending regulatory and shareholder approval. Most of Niku’s roughly 290 employees will remain with the company after the acquisition is complete, Computer Associates said. Niku Chief Executive Officer Joshua Pickus will join Computer Associates as senior vice president of business service optimization, the unit that will integrate Niku’s software products.

Computer Associates said in a conference call that the acquisition would lower fiscal 2006 earnings by a penny per share, and add slightly to earnings in fiscal 2007. For the rest of its fiscal year ending next March, the company forecast Niku would contribute about $40 million of revenue, an operating loss of $10 million, and free cash flow of $6 million.

Computer Associates also said it would pay for Niku with its current cash holdings, which stood at $3.1 billion at the end of March.

For fiscal 2005, Niku posted net income of $4 million on sales of $66.3 million. Computer Associates, with about 15,300 employees, reported earnings of $10 million on sales of $3.5 billion in fiscal 2005.

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