Microsoft Plans to Buy Software Maker Visio for $1.3 Billion

In its largest acquisition to date, Microsoft Corp. said Wednesday that it agreed to buy Visio Corp., a maker of technical drawing software, for $1.3 billion in stock.

Under the agreement, Seattle-based Visio would become a division within Microsoft’s business-productivity group, which includes the Office suite of products, the software giant’s biggest and most profitable business line.

Microsoft Senior Vice President Bob Muglia said the company plans to continue offering the recently released Visio 2000 line of products as a “separate but complementary” addition to the Office programs. Analysts said they expected some of Visio’s diagraming and drawing programs to be integrated into the Office suite eventually.

The deal, which is expected to close by mid-December at the earliest, will add “very modestly” to Microsoft earnings immediately and more over the long term as the business grows, said Microsoft Chief Financial Officer Greg Maffei.

“This is a very unusual deal for Microsoft in that it is not even initially dilutive,” he said in a conference call with analysts and reporters. “Over the next couple of years, I think Visio will outgrow Microsoft as a whole--both at the top line and the bottom line--and make incremental contributions.”

He estimated the acquisition would add less than 5 cents a share to Microsoft’s 2001 earnings.

Under the deal, subject to regulatory review and Visio shareholder approval, each Visio share would be exchanged for 0.45 share of Microsoft.

That was a 28% premium over Visio’s closing price Tuesday, and the shares jumped $6.38 on Wednesday to close at $39.88 on Nasdaq, well below its all-time high of $50.88 in May 1998. Microsoft lost $2.44 to close at $92.63 on Nasdaq.

Jeremy Jaech, president and chief executive of Visio, said the company decided to join with Microsoft largely because of a shift in sales of corporate licenses, which increasingly are replacing packaged software sales.

“We have been working very hard to build up our sales and marketing activity to support that way of selling, but we can’t do it nearly as quickly or as broadly as what we can do by teaming with Microsoft,” he said.

Microsoft, based in suburban Redmond, Wash., expects to keep most of Visio’s 700 employees, some of whom will be offered jobs elsewhere in the company. Muglia said Visio’s proximity in Seattle, where the labor supply is scarce, was among the motivating factors for the deal.

Visio, founded in 1990, has always hitched its wagon to Microsoft’s star, designing products for the Windows and Office platform, and for that reason, analysts said the two companies were a good fit.

“Would I have liked to see a couple of dollars more? Sure. But it’s a good deal for shareholders,” said David Farina of William Blair & Co. in Chicago.

Jennifer Smith of Dain Rauscher Wessels said the price was “reasonable” considering that Visio just launched an upgrade to its core product line but stumbled in its latest quarter when it failed to meet profit estimates.

For its fiscal year ended October 1998, Visio earned $28 million on sales of $166 million, compared with earnings of $7.8 billion on revenue of nearly $20 billion for Microsoft.

While Microsoft’s $5-billion investment in AT&T; Corp. was a larger deal, the software giant’s biggest completed acquisition to date was its $425-million purchase of WebTV Networks in 1997. In 1994, Microsoft announced plans to buy Intuit Inc. for more than $2 billion, but that deal was abandoned in the face of opposition from federal regulators.

Microsoft executives said they expected no regulatory obstacles to the current deal because the two companies have no common products.