Software company Citrix is to pay $500m (£252m) for XenSource, an open source software firm seen as a rival to virtualisation specialist VMWare.

VMWare was valued at $11bn (£5.5bn) when it debuted earlier this week on the New York Stock Exchange, with shares surging 76 per cent from a value of $29 (£14.50) to $55 (£28), before settling at $51 (£26) at the end of the day.

The strong performance could explain the high valuation of XenSource, which will generate just $1m (£500,000) in sales this year.

XenSource was set up just three years ago to provide server and desktop virtualisation to businesses, enabling multiple operating systems to run on a single ‘virtual’ machine.

Citrix says the market is expected to grow to almost $5bn (£2.5bn) over the next four years.

XenSource chief executive Peter Levine said the takeover will make it a strong contender in the burgeoning virtualisation market.

‘The move is not about competing for the five per cent of the market that is already being served,’ he said. ‘It is about steering into the 90 per cent that is wide open, both at the server level and in emerging opportunities at the desktop.’

The acquisition is expected to be completed in the fourth quarter of 2007.