Citrix Systems Inc., the global leader in application delivery infrastructure, has announced a $500-million friendly takeover bid for XenSource Inc., a privately held leader in enterprise-grade virtual infrastructure solutions for approximately $500 million.

The cash and stock deal includes the assumption of approximately $107 million in unvested stock options.

Analysts speculate that the deal may invite giant Microsoft Corp to put in a rival bid exceeding Citrix''s $500-million bid.

The deal was announced on the heels of the public listing of rival virtualisation software leader VMware Inc''s $1.1-billion maiden issue, valued at $19 billion in which Cisco Systems and Intel Corp had earlier in July acquired a stake. (See: After Intel, Cisco to invest $150-million stake in Vmware and Intel acquires 2.5-per cent stake in software firm Vmware)

What may draw giant Microsoft is the fact that Microsoft has similar virtualisation software, called Viridian, which will be integrated with its Windows Server product due to be released in the third quarter of 2008.

Even though Microsoft plans to release the product next year, in May it had said that key functions of the virtualisation software would not be included in the first version and has not yet said when they will be.

Analysts interpret this to Viridian''s functionality, widely perceived as being inadequate, as being incapable of standing up to competition from rivals like Vmware, which has a 85-per cent market share, and therefore, expect the software giant to top Citrix''s bid with a substantially higher offer for XenSource, Vmwares''s closest rival to acquire market share in the server virtualisation market that IDC expects to grow to $3.5 billion in 2011.

What may prod Microsoft to bid fro XenSource is the fact that in May its archrival, Google, whose internet search leadership it has failed to challenge, acquired browser virtualisation security software maker GreenBorder Technologies Inc.

Interestingly, XenSource is also a part of the open source software movement, having built its business around open source Xen hypervisor, which is used by Red Hat Inc. and other Linux-based companies.

For Citrix, the XenSource deal makes sense. Not only will it be able to speed up the launch of a virtualisation product quicker, but also acquire the technology for it that would fuel its growth and enable it to become a larger software and technology vendor and move beyond being a mid-cap supplier.

It would also improve its own acquisition prospects for giants like Hewlett-Packard, IBM, Cisco Systems Inc., EMC Corp, Symantec Corp or Microsoft