VMware to buy SpringSource for $362 million

PALO ALTO, Calif. —VMware Inc., which makes software that allows business servers to run multiple operating systems simultaneously, said Monday it is acquiring SpringSource for $362 million in cash and stock.

The purchase of SpringSource, a privately held business and Web application developer, also includes the assumption of $58 million in unvested stock and options. The deal is expected to close in the third quarter.

Separately, Jefferies analyst Katherine Egbert downgraded VMware to "Underperform" from "Hold."

While calling VMware "one of the most exciting software stories in years," Egbert said the investor enthusiasm that has helped the stock double in the last eight months isn't likely sustainable.

VMware's services let businesses go virtual with their data centers — Ethernet connections, switches, firewalls, servers and others. The company is 85 percent owned by EMC Corp.

Egbert noted a threat from Microsoft Corp.'s Windows Server 2008 R2 release in October. She sees Microsoft grabbing 25 percent of the server virtualization market, up from 15 percent, with the release. The analyst believes the Microsoft product will be priced at a third of VMware's vSphere.

"Microsoft, of course, has a history of slowly coming from behind and using its cash resources to grind away at market leaders," she said in a research note. "The software giant now has VMware in it sights."

Shares of VMware fell 77 cents to close earlier at $32.