It looks like the software-as-a-service market will soon have a new power player to reckon with. Remote desktop access giant LogMeIn Inc. announced this week that it’s merging with Citrix Systems Inc.’s collaboration business in an all-stock deal worth $1.8 billion. The combined company is expected to generate annual revenue of over $1 billion.

The news comes 10 months after Citrix first revealed its intention to spin off the division, which uses the brand GoTo, as part of an effort to refocus on its core virtualization business. Combining such a move with a merger is called a “Reverse Morris Trust” transaction after the firm that pioneered the method in the ‘60s, and serves to avoid the taxes that are normally imposed on companies looking to shed redundant units. The gambit will leave more capital for Citrix to invest in its restructuring effort and thereby make the management team’s task somewhat easier, increasing the chances of success.

This benefits first and foremost the vendor’s shareholders, who also stand to gain a 49.9 percent stake in the new entity that will emerge from the merger. The remainder will be owned by LogMeIn investors, who in turn appear to be even more enthusiastic about the deal than the Citrix camp. Reuters reports that the authentication provider’s stock price jumped more than 20 percent in after-hour trading following the merger announcement. Wall Street has good reason to be excited: The combined company is expected to achieve $100 million in annual savings within two years of the transaction’s completion.

In other words, LogMeIn and GoTo will be in a much better competitive position than they are now. The companies plan to put a stronger management team in place, synchronize go-to-market efforts and integrate their product lines into one unified portfolio. The combined vendor will presumably also eliminate some of the overlap that currently exists between the product lines to streamline its value proposition. Among the tools that are likely to be axed is GoToMyPC, which competes with LogMeIn’s flagship remote desktop tool, and the latter vendor’s join.me online meeting software.

The merger is expected to complete early next year. The combined company will use LogMeIn’s brand and move under the leadership of its current CEO, industry veteran Bill Wagner, with GoTo operating as a wholly owned subsidiary.

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