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Computer Associates to Purchase Sterling Software for About $4 Billion

The deal has already been approved by the boards of both companies.

Updated from 9:45 a.m. EST

Software giant

Computer Associates

(CA) - Get CA, Inc. Report

said Monday it has inked a deal to acquire

Sterling Software

(SSW) - Get Seaspan Corporation Report

for about $4 billion in stock.

Islandia, N.Y.-based Computer Software, the world's third-largest software maker, said the deal will expand its array of products and services. Dallas-based Sterling makes applications development, computer network management and information management software.

The companies said the deal will create the industry's largest supplier of storage management technology.

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"We are extremely focused on being the leading provider in storage and network management, business intelligence and portal solutions," said Sanjay Kumar, president of chief operating officer of Computer Associates.

The deal has already been approved by the boards of both companies. It remains subject to shareholder and other customary approvals.

Under terms of the agreement, Computer Associates will exchange 0.5634 shares of its stock for each outstanding Sterling share. That values Sterling at $39.30 a share, a 14% premium over Friday's close of 34 7/16. Computer Associates closed Friday at 69 3/4.

In early trading Monday, Computer Associates was down 1 3/16, or 2%, to 68 9/16 while Sterling was up 2 7/16, or 7%, at 36 7/8. (Computer Associates closed down 7/16, or 0.63%, at 69 5/16. Sterling closed up 1 13/16, or 5.3%, at 36 1/4.)

Robert Johnson, analyst with

ABN Amro

, called the deal "very attractive." Johnson said the deal widens the gap between Computer Associates and smaller competitors such as

BMC Software


in Houston in that it deepens and broadens its product offerings. "It just makes it harder and harder to catch up with CA."

The deal likely adds 3-5 cents per share to Computer Associates' earnings right off the bat, Johnson said. "At least we're not starting in a hole like with most acquisitions." The company also picked up Sterling at a fairly cheap price, he said. "Frankly, I think Sterling's worth more than $40 a share."

Johnson rates both Computer Associates and Sterling buys; his firm has not done any underwriting for either company.