In a joint statement, the two software companies said Arbor will exchange 0.95 shares of its common stock for each share of Hyperion, creating a company with more than $350 million in revenues, based on pro forma results for the 12 months ended March 31.
Arbor shareholders will own approximately 40 percent of the continuing company while Hyperion shareholders will own approximately 60 percent.
Arbor is an online analytical processing (OLAP) software maker. Hyperion is an budget and financial applications vendor with close partnerships with many other applications vendors, most notably Baan. Last year the business applications vendor signed a deal with Hyperion to integrate their offerings, build new Internet apps, and pool distribution efforts.
Today's deal is being accounted for as a pooling of interests and is expected to close in the late summer, the companies said, adding that based on the Nasdaq closing prices of both companies on May 22, the combined market capitalization would be approximately $1.3 billion.
"This will strengthen the Arbor camp significantly, specifically on the applications side," said Mike Schiff, an analyst with Current Analysis. "It places [Arbor] in a stronger position against Microsoft and Oracle." He did not comment on how this would affect Hyperion's relationship with Baan.
The merger between the two companies also makes sense in the wake of Microsoft's decision to bundle its Plato OLAP Server as a component of its SQL Server 7.0, because it shows Arbor is looking dig in and do battle in the market space with its own OLAP solution, enhanced by Hyperion technology.
The companies said both of their respective boards of directors have unanimously approved the definitive merger agreement.
Hyperion Solutions will have its headquarters based in Sunnyvale, California, and will develop analytic application software.
The company is expected to have 1,800 employees working in 26 countries.
John Dillon, Arbor's current chairman and chief executive officer, will become CEO of the combined company and Jim Perakis, Hyperion's current chairman and CEO, will become chairman of the combined company.
Stephen Imbler, Arbor's current CFO; Bill Binch, Arbor's current head of sales; Kirk Cruikshank, Arbor's current head of marketing; Craig Schiff, Hyperion's current head of services; and Mark Bilger, Hyperion's current head of development, will hold these positions in the combined company.
The Board of Directors of the merged organization will include four directors from Hyperion and three directors from Arbor.
Arbor Software recorded $82 million in revenues for the twelve months ended March 31, 1998, while Hyperion recorded revenues of $271 million during the same period.
Reuters contributed to this report.