Microsoft Corp agreed to buy online social network firm Yammer Inc for $1.2 billion in cash, which will allow the software company to offer a service like Facebook Inc's to corporate customers.

Talk of a deal had circulated earlier this month, but the two companies only confirmed the deal on Monday.

Four-year-old Yammer, which has 5 million users of its private, in-company social networks, helps companies' internal communications and strategizing by allowing employees to interact with each other freely. Companies such as Ford Motor Co , Supervalu and Deloitte are customers.

The firm will become part of Microsoft's Office unit under Kurt DelBene but will still be led by current Chief Executive David Sacks.

Microsoft, which owns a small fraction of Facebook shares, has been looking for ways to make its desktop-bound products more attractive to its core corporate users and home consumers.

Last year it paid $8.5 billion to buy online chat company Skype, which it is integrating into its offerings, including Office.

Microsoft's Office suite of applications - including Outlook email, Excel spreadsheets and PowerPoint presentation program - is the bedrock of most companies' day-to-day working software.

The Office unit is Microsoft's most profitable, contributing 60 percent of its profit last year, and amassing more sales than its flagship Windows operating system.

Microsoft shares were down 3.5 percent at $29.63 on Nasdaq in Monday afternoon trading.