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Rational deal boosts SQA stock

Automated tools tester SQA's stock continues to tick up following its merger announcement with Rational Software.

Automated tools tester SQA (SQAX) today saw its stock continue to tick up following its merger announcement with Rational Software (RATL).

SQA traded as high as 33 a share this morning, up 1/2 from its close Wednesday when the companies discussed their merger plans. During trading on Wednesday, SQA saw its stock jump 7 points from its close the previous day.

Rational, an object-oriented tools maker, plans to acquire SQA in a stock transaction valued at $300 million. "By combining, we'll accelerate the SQA strategy, which is to be the leading business in the [automated software quality] market, and the Rational strategy, which is to be the leading company providing product suites for component-based development. The fit between the two companies, we believe, is superb," said Paul Levy, Rational's chairman and chief executive, during a press conference.

Under the deal, Rational will merge SQA's automated software quality (ASQ) product suite with the visual test product that Rational acquired from Microsoft last month. This move will enlarge Rational's ASQ solutions.

Overall, the merger will enlarge Rational's suite of tools for modeling, assembling, testing, and managing components.

Rational expects to take a one-time charge for merger-related costs during the fourth quarter, and the deal is expected to close during the first quarter. The company will exchange 0.86 of a share for every share of SQA in the stock-swap deal.

Ron Nordin, SQA's chief executive, will become a Rational board member and senior vice president in charge of the company's ASQ business. SQA will continue to operate from its office in Massachusetts, and the combined company will have a work force of about 680 people.

Nordin said his company will not only benefit from an acceleration in product development, but also in sales and distribution.

Rational has a major direct sales force domestically and overseas, while SQA has a large indirect and telemarketing sales force in the United States. SQA was in the process of building its direct sales force when the merger agreement was reached, he said.

Internationally, SQA uses distributors and was in the process of building its subsidiaries, while Rational already has a number of subsidiaries overseas.

"We can dramatically accelerate our growth internationally with this merger," he said.