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Updated from 10:06 a.m. EST

Silknet Software


soared Monday after business service company

Kana Communications


said it would acquire the software maker in an all-stock deal valued at $4.2 billion.

The deal combines two big business-to-business companies. Silknet, which is based in Manchester, N.H., produces customer service software, while Kana, based in Redwood City, Calif., makes software that helps businesses manage customer email.

Under the terms of the agreement, each outstanding share of Silknet common stock will be exchanged for 0.83 share of Kana stock, a 21% premium over the price of Silknet shares in the last 30 days, the companies said in a joint statement.

Silknet shares were up 40 1/8, or 29%, to 177 1/8. Kana was down 16 3/4, or 6%, to 242 1/8. (Silknet closed up 46 1/8, or 33.7%, at 183 5/16. Kana closed down 18 3/8, or 7.1%, at 240 1/2.)

The deal is expected to close in the second quarter.

Kana said the deal will improve its services by adding Silknet's customer services technology.

George Godfrey, analyst at

ING Barings

who initiated his coverage of Kana with a buy last month, agrees. "Obviously it broadens their suite of products."

The deal is the latest in a spate of recent acquisitions by Kana, which has acquired closely held






to beef up its Internet marketing system.

Godfrey likes the fact that Kana management is moving aggressively to use its high stock price as a currency. "It really shows the aggression of Kana's management team," Godfrey said. "

The acquisition doubles the current quarterly revenue and it doubles Kana's employee base."

Each of Kana's recent acquisitions plays a part in its overall strategy. "The acquisitions all complement one another," he said. "Each acquisition is clearly aligned at getting an enterprise closer to the customer."

Kana's software helps electronic commerce firms manage email and Web site-based forms and information. Customers include










Silknet provides software that allows companies to offer customers personalized marketing, sales, electronic commerce and support services through a single Web site system. Silknet's customers include

Office Depot


, Microsoft and