Microsoft has agreed to purchase Visio, a developer of design and diagramming software, for about $1.3 billion in stock.

The Redmond software giant will exchange 0.45 of a share, or about $42.78 at yesterday's closing price, for each Visio share, about 28 percent above Visio's closing price yesterday of $33.50. The news pushed Visio's stock up $6.375, or 19 percent, to $39.875 at the close of trading; Microsoft slipped $2.438 to $92.625.

Seattle-based Visio, with 555 employees, will become a division in Microsoft's business productivity group, led by Senior Vice President Bob Muglia. It will continue to operate with no immediate changes, the companies said today.

Jeremy Jaech, Visio president and chief executive officer, will lead the division as a Microsoft vice president, reporting to Muglia. Co-founder Ted Johnson, Visio's chief technology officer, will become a Microsoft vice president and direct future product development for the Visio division.

Visio, which five months ago moved its headquarters to the Port of Seattle's World Trade Center on the central waterfront, will stay there. A spokeswoman for Microsoft said the future includes Visio's planned expansion next year into a five-story office building being developed by Wright Runstad.

Visio will continue to focus on marketing its latest product, the Visio 2000 editions, and on upgrading customers to this version. The product will remain a separate but complementary one in the Microsoft Office family of applications.

The announcement comes just a month after Visio officially launched its Visio 2000 edition and announced a revised strategy to focus more on licensing software to companies, as opposed to retail sales. That news failed to spark much movement in the company's stock price, which has hovered in the $25 to $35 range for more than a year.

The alliance with Microsoft, the world's largest software company, gives Visio far greater reach than it could have on its own, said Jaech.

"It's the dream of every software maker to have as broad an impact as possible with the technology they've developed," he said. "This transaction really makes our dream possible at a faster pace."

The Visio purchase doesn't match the profile for some of Microsoft's more recent investment initiatives, said David Readerman, an analyst with Thomas Weisel Partners.

"I'm a bit surprised at the investment back into what is the more mature part of not only the company's business, but also the software industry in general," he said.

But Microsoft Chief Financial Officer Greg Maffei said the deal is good for the company, helps extend its Office suite of software tools, and will add some sales and profit.

The two companies have collaborated for years on Windows and Office products and have a close working relationship, said Jay Vleeschhouwer, an analyst with Merrill Lynch Global Securities in New York.

His company had identified Visio as a potential acquisition candidate for Microsoft more than a year ago.

"Microsoft will draw on Visio's customer base, volume and its position as the brand leader with corporate customers that Visio has developed," Vleeschhouwer said. For Visio, he sees advantages in greater market reach and resources.

Microsoft's Muglia said, "In many ways, Visio is a perfect fit for Microsoft." He cited Visio's talented employees, years of experience in pioneering diagramming software running on Windows, and its close proximity to Microsoft's Redmond headquarters.

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