Microsoft (Nasdaq: MSFT), the world's biggest software company, said Monday it will acquire Yammer, a social network specialist, for $1.2 billion, to battle Facebook (Nasdaq: FB),  Google (Nasdaq: GOOG) and International Business Machines (NYSE: IBM).

The San Francisco-based company, which designs enterprise software networking to rival Jive Software (Nasdaq: JIVE), will become part of the Redmond, Wash., company's Office division. CEO David Sacks will remain.

Microsoft, a minority investor in Facebook since 2007, has been moving to broaden its reach into social networking ahead of the release of Windows 8. The deal adds "a best-in-class enterprise social-networking service to Microsoft's growing portfolio of complementary cloud services," said Microsoft CEO Steve Ballmer.

Yammer was established in 1998 by Sacks and others who had sold PayPal to eBay (Nasdaq: EBAY) for $1 billion.

Microsoft had $59.5 billion in cash and investments as of March 31.

Microsoft shares fell 84 cents to $29.86 in Monday trading. They've gained 15 percent so far this year.

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