By Mike Ricciuti
Friday, December 17 2004 11:44 AM
URL: http://www.zdnetasia.com/news/software/0,39044164,39209775,00.htm

In a long-rumored move, security software maker Symantec said Thursday that it will buy storage specialist Veritas Software in a deal worth roughly $13.5 billion.

The combined company will form a powerhouse in security, systems and storage management software with about US$5 billion a year in revenue.

The company will operate under the Symantec name, with John Thompson, Symantec's chief executive, serving as chairman and CEO. Gary Bloom, Veritas' chief executive, will become vice chairman and president.

"This transaction brings together two leaders in the industry," Thompson said during a conference call with analysts on Thursday. "This is a friendly merger and a merger where the leaders share a common view of the industry."

The deal is the latest sign of consolidation in the enterprise software market and the second major acquisition this week. On Monday, PeopleSoft agreed to be acquired by Oracle after an 18-month battle in a deal worth roughly US$10 billion.

Analysts expect more consolidation as companies try to increase their range of products to better compete for tight IT budgets. That pressure is prompting midsize companies and the industry's largest players to consider combinations to reach the broadest swath of the market.

For instance, Symantec, the leading security software maker, sells its Norton line of products to both businesses and consumers, while Veritas serves midsize and large companies with its storage management systems. The companies are also banking on the desire of large companies to consolidate the number of vendors that they do business with.

"We looked at how important security is to customers and how important information availability is to customers and they are both in the sweet spot for CIOs," Bloom said.

Thompson stressed the merger was not an idea born out of a desire to grow the business while cutting costs.

"Although we see some opportunity for cost savings, it was not the driving reason for the merger," he said, while noting that there are no overlapping products between the companies.

Thompson was also emphatic the merger was not a defensive move to hedge against any future weakness in consumer security software sales, which currently account for half of Symantec's revenue.

"Our consumer business has been very, very solid for the last three years," Thompson said. "This merger was not a defensive more by any stretch of the imagination."

Analysts said the deal is all about market clout. "This acquisition...is about remaining competitive in a consolidating market filled with giants like Cisco, Hewlett-Packard, IBM and Sun," according to a report issued this week by Forrester Research.

"There is no overlap between (Symantec and Veritas)—-the companies' product portfolios are vaguely complementary--but don't expect any radical new technology combinations because there are few, if any," Forrester said.

Still, the combined company's products will likely find a warm reception among technology buyers. Storage and security are top spending priorities for big business, despite a continuing trend toward cutting IT expenses, according to a recent survey of roughly 1,400 information technology buyers by Forrester.

Analysts questioned the combined company's reach, and whether the main buyer of storage technology and of security software will be one in the same, or whether Symantec will need to maintain two separate sales teams.

"One of the wonderful things is we have 1,600 people in our direct sales force and Veritas has 2,000," Thompson responded. "It's a powerful combination."

Analysts also raised questions concerning the ability of the companies to blend their respective corporate cultures. The combined company will have 13,000 employees once the merger is completed. Symantec is based in Cupertino, Calif., while Veritas is headquartered in Mountain View, Calif.

"Each company has its own culture and over time we hope to have one culture that takes the best of both," Thompson said.

Thompson said the companies will begin calling customers and partners, such as Dell, Microsoft and EMC, to discuss ways the combined company plans to work with them. The relationships are complex. EMC, for example, is a competitor to Veritas but a partner with Symantec.

The board of directors of the combined company will include six members of Symantec's current board and four from Veritas' current board for a total of 10 members, the companies said.

Symantec will pay US$30.78 a share in the deal, which represents a premium of 9.5 percent over Veritas' closing price Wednesday of US$28.11 on the Nasdaq.

Under the deal, which has been approved by both boards of directors, Veritas stock will be converted into Symantec stock at a fixed exchange ratio of 1.1242 shares of Symantec common stock for each outstanding share of Veritas common stock, the companies said. Upon closing, Symantec shareholders will own approximately 60 percent and Veritas shareholders approximately 40 percent of the combined company.

The deal is subject to regulatory approval.

News.com's Dawn Kawamoto contributed to this report.