EMC Tuesday announced an agreement to acquire Legato Systems in a stock transaction valued at $1.3 billion.

The acquisition will add to EMC’s heterogeneous storage management packages by adding backup and recovery capability, hierarchical storage management and e-mail and content archiving among others.

EMC has been trying to break into the open storage software market for the last two years.
According to documents filed with the Securities Exchange Commission, 75% of EMC’s $781 million budget was devoted to software alone. Software represented 23% of EMC’s revenue in 2002.

Many in the industry had anticipated the acquisition of Legato, but had been disappointed lately as the rumored acquisition lagged on, some say because of Legato’s high capitalization.

“This is a pretty good thing,” says Steve Kenniston, senior analyst with the Enterprise Storage Group. “EMC has competed with Veritas pretty heavily over the last 12 to 18 months. EMC really wants to be a software company, but the question was of what tools they needed to do it.”

“Now they can leverage Legato’s large installed base in backup and recovery,” says Kenniston. Legato is a long-time player in the backup and recovery market, who has seen much of its grasp of this market share, eke out to Veritas over the years. From an installed base, Legato still leads Veritas, Commvault and IBM.

Legato will be operated as a software acquisition located in Mountain View, Calif. The company’s sales, marketing and service organizations will sell and service Legato products. EMC and Legato will integrate engineering and development functions.

EMC will integrate its backup and recovery software, Enterprise Data Manager (EDM) into Legato Networker over time.

The acquisition of Legato is one of a long line of software companies EMC has acquired in the last two years. EMC acquired storage resource management vendor Astrum, storage management vendor Prisa Networks and BMC’s line of heterogeneous storage management software.

In other news, EMC announced preliminary financial results for the second quarter. EMC expects its revenue to range between $1.425 billion and $1.475 billion, or earnings of 3 to 4 cents per share.

The acquisition is expected to close in the fourth quarter of this year.