2nd UPDATE: H-P To Buy IT Security Company ArcSight For $1.5 Billion
September 13 2010 - 12:03PM
Dow Jones News
Hewlett-Packard Co. (HPQ) agreed to buy security-software maker
ArcSight Inc. (ARST) for about $1.5 billion, continuing the
company's spending spree that began after Chief Executive Mark Hurd
resigned last month.
The deal also represents the latest purchase of a smaller
security firm by a huge technology company, a trend some see
continuing as big tech considers the importance of adding security
to their product portfolio. ArcSight makes software that monitors
corporate networks for unusual activity, such as a hacker's attempt
to break into a system.
ArcSight shares recently traded at $43.81, above H-P's offer
price of $43.50 a share, suggesting some traders may be expecting
or hoping for a higher bid, similar to what happened with storage
maker 3PAR Inc. (PAR) last month. ArcSight, of Cupertino, Calif.,
had been quietly shopping itself to a handful of big technology
companies, and the agreed-upon deal provides a 24% premium to
ArcSight's closing price Friday and a 70% premium to where it was
trading a month ago.
On a conference call with investors, H-P executives declined to
comment about the bidding process for ArcSight. They also wouldn't
speculate about what would have happened if Hurd remained CEO.
H-P expects the acquisition to close by the end of the calendar
year and doesn't see any material earnings dilution in its next
fiscal year. The company is in the fourth quarter of its fiscal
2010 year. H-P shares, down 26% so far this year, added 2 cents to
reach $38.22 in recent trading.
"The combination of H-P and ArcSight will provide clients with
the ability to fortify their applications, proactively monitor
events and respond to threats," said Bill Veghte, H-P's executive
vice president of software and solutions.
The ArcSight deal continues H-P's push into software and other
areas outside of its core computer-hardware businesses that began
under Hurd. Software, networking, storage and services--all areas
in which H-P has expanded recently--have higher margins than the
company's core personal-computer and server-system businesses. H-P
executives have said repeatedly that the company will continue the
expansion strategy.
Veghte reiterated that sentiment Monday, saying H-P has "a very
clear and good M&A strategy" that's unchanged since Hurd's
departure.
"The company continues to make acquisitions where they make
strategic operational and financial sense," Veghte said.
The deal for ArcSight is the latest episode in a month-long
drama starring H-P. Last month, Hurd resigned following violations
of the Palo Alto, Calif., company's code of business conduct, and
he later joined H-P rival Oracle Corp. (ORCL) as co-president.
Shortly following Hurd's departure, H-P launched a bidding war with
Dell Inc. (DELL) for 3PAR, eventually winning with a bid of $2.35
billion, almost double the amount Dell had initially agreed to
pay.
Investors have been concerned about H-P's strategy--including
the high premiums it's paying for acquisitions--since Hurd left the
company.
"While such an acquisition would fit into the company's overall
enterprise strategy, we believe Street sentiment would likely
rather see the company get a new CEO announcement behind them and
look to digest some of the acquisitions it has recently or will be
completing (i.e., 3Com, Palm, 3PAR)," Stifel Nicolaus analyst Aaron
C. Rakers said in a research note Monday.
Others noted the deal continues a wave of consolidation in the
information technology sector. Last month, chip maker Intel Corp.
(INTC) offered to buy security specialist McAfee Inc. (MFE) for
$7.7 billion.
Security companies have attracted interest from larger
information-technology providers lately as the industry's biggest
companies look to offer a wider variety of products and give
customers an end-to-end solution. Software that helps companies
manage data securely is especially in demand.
H-P's Veghte said on a conference call that customers are not
only looking for software products but also for services and
hardware around the software to "deliver coherent solutions." He
said H-P's acquisition of ArcSight will allow it to provide its
enterprise clients with "holistic and proactive" solutions to
manage their security risks and stay compliant with regulations at
lower costs.
Meanwhile, Jefferies analyst Katherine Egbert noted seven other
security companies that could attract interest from larger tech
companies. They were: Sourcefire Inc. (FIRE), Fortinet Inc. (FTNT),
Vasco Data Security International Inc. (VDSI), Symantec Corp.
(SYMC), Check Point Software Technologies Ltd. (CHKP), Blue Coat
Systems Inc. (BCSI) and Websense Inc. (WBSN).
The analyst added, though, "we do not believe any of these
vendors are an active target right now."
Vasco and Check Point declined to comment, while representatives
from Sourcefire, Fortinet, Blue Coat and Websense weren't
immediately available to comment.
-By Shara Tibken, Dow Jones Newswires; 212-416-2189;
shara.tibken@dowjones.com
(George Stahl, Ben Worthen and Anupreeta Das contributed to this
article.)
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