VMware has signed a definitive agreement to acquire Nicira, Inc., a pioneer in software-defined networking (SDN) and a leader in network virtualization for open source initiatives.

Managing networks and network services to support cloud architectures is complex, time consuming and limits the achievement of full application mobility across clouds. Nicira is at the forefront of software-defined networking, which enables the dynamic creation of virtual network infrastructure and services that are completely decoupled and independent from the physical network hardware.

Many industry leaders, including AT&T, DreamHost, eBay, Fidelity Investments, NTT and Rackspace are using the Nicira Network Virtualization Platform (NVP) to accelerate service delivery from weeks to minutes and dramatically reduce complexity and cost.

“Nicira helps customers dramatically improve business velocity and efficiency by transforming how networking works in the Cloud era,” said Steve Mullaney, CEO, Nicira. “I’m thrilled to be joining forces with VMware to help build the software-defined datacenter.”

“The value we bring to customers lies in our open approach and the richness of capabilities in network virtualization,” said Martin Casado, co-founder and CTO, Nicira. “The combination of Nicira and VMware brings together two pioneering teams, and gives customers the industry leading SDN solution for any cloud environment, on any hypervisor in the enterprise and with Service Providers.”

VMware plans to continue to support the open principles and technologies that have made Nicira solutions successful, including the Open vSwitch to connect physical networks and multiple hypervisors and the open extensibility framework to implement business-level policies from any cloud management system. This will allow enterprises and service providers to create the most flexible network topologies that seamlessly span any cloud environment.

VMware is committed to maintaining Nicira’s openness and bringing additional value and choices to heterogeneous environments and the OpenStack, CloudStack and other cloud related communities.

This acquisition expands VMware’s networking portfolio, which includes the VMware vSphere virtual switching, VMware vCloud Director networking, vShield Network and Security software defined services, and the VXLAN protocol to provide a full suite of software-defined networking capabilities and a comprehensive solution lineup for virtualizing the network – from virtual switching to virtualized layer 3-7 services.

This will allow customers to create a pool of network capacity on top of any network infrastructure from which they can easily support tens of thousands of isolated virtual networks with the simplicity and operational ease of creating and managing virtual machines.

VMware will acquire Nicira for approximately $1.05 billion in cash plus approximately $210 million of assumed unvested equity awards.

The acquisition is subject to regulatory approvals and other customary closing conditions.

The parties expect the acquisition to close during the second half of 2012.

The acquisition has been approved by the boards of directors of both VMware and Nicira and the stockholders of Nicira.