The cash tender offer of EUR10 per share - which has been approved by Ilog's board - represents a 37% premium to the vendor's closing price on Friday.

Founded in 1987 with headquarters in France and California, Ilog employs around 850 staff. The company has a strong footing in the banking industry with clients including ABN Amro, Bank of America, Citi, Deutsche Bank and card firm Visa.

The IBM deal is conditional upon US and EU antitrust clearances and acceptances from shareholders representing 66.67% of the stock capital. IBM says it has already received commitments from shareholders representing 10% of Ilog stock.

The Ilog board is expected to give a final recommendation before 15 September, after which the offer will be filed with the French stock exchange authority.

Following the acquisition, IBM says it will combine its BPM, business optimisation and service oriented architecture (SOA) technology with Ilog's software to help clients deliver critical business information in real-time.

"IBM has partnered with Ilog for over a decade, and by adding Ilog's capabilities to IBM's software portfolio, this is a great combination to provide value to our clients," adds Tom Rosamilia, general manager, IBM WebSphere.

But news of the proposed acquisition comes as Ilog reports a drop in full year net profit to $0.5 million from $4.9 million in fiscal 2007 as the credit crunch hit its business with banks.

"In the fourth quarter, we faced a challenging economic environment, notably in the financial sector, which remains a key source of revenues for Ilog," says Pierre Haren, chairman and CEO, Ilog, in a statement.

In a separate move IBM says it will establish a technology centre in Shanghai that will help financial services clients in China address "issues in core banking systems and payments".

IBM says the new facility will bring together business and technology experts to design and implement next generation payment and core banking systems for China's leading banks.

IBM operates similar banking technology facilities in Korea, Vietnam and South Africa as well as in Silicon Valley and Poughkeepsie in the US.