HP to pay $1.5b for ArcSight
Hewlett-Packard Co announced a deal to buy security software firm ArcSight Inc for $1.5 billion, as HP continued its M&A spending spree even while it hunts for a new chief executive.
The transaction would mark HP’s second big acquisition since the departure of CEO Mark Hurd following a sexual harassment probe in August. The deal follows HP’s winning of a bidding war against Dell Inc for data storage company 3PAR Inc.
HP said it will pay $43.50 per share in cash for ArcSight, representing a 24 percent premium to its closing price last Friday. Analysts would not rule out rival bids for ArcSight, with potential suitors including IBM, Oracle and Cisco Systems
ArcSights software help firms protect their digital assets from cyber attacks and fraud, and aids in regulatory compliance.
While some analysts said HP overpaid, they said HP’s interest in security software fits with its broader enterprise strategy.
“I think ArcSight is to degree a unique asset, and it compliments what the company is doing with the convergence of networking and their server and storage strategy,” said Stifel Nicolaus analyst Aaron Rakers.
At $1.5 billion, HP paid roughly six times ArcSight’s expected fiscal 2011 revenue.
Wedbush Securities analyst Kaushik Roy agreed that ArcSight would be a good fit for HP. He said HP overpaid, but not nearly to the degree it did with 3PAR, for which it paid $2.4 billion.
But Roy questioned the aggressive strategy of HP’s board, spending billions on acquisitions in the midst of a leadership vacuum.
“Investors are nervous about how the board is using the balance sheet,” he said.
“The board is trying to signal that we’re in control, we’re active, but at the same time it’s better to focus on getting a new CEO,” Roy said.
Analysts said Hurd was undoubtedly involved in talks for ArcSight before he was pushed out and moved to Oracle.
HP sued Hurd last week in an attempt to block that move, saying his hiring by the rival technology firm puts HP’s trade secrets “in peril.
BIDDING WAR?
ArcSight shares rose 25 percent to $43.92 in morning trading. The stock has risen 56 percent since The Wall Street Journal reported on August 26 that ArcSight had put itself up for sale.
Analysts said HP’s rivals could come in with rival bids for ArcSight.
“It wouldn’t be surprising” Michael Holt, a Morningstar analyst, said about the likelihood of a rival offer. He said ArcSight could fit in a number of “tech titan” portfolios, including Dell.
Cupertino, California-based ArcSight serves customers including utilities, government agencies as well as financial services and telecommunications providers.
The deal is the latest in a rash of consolidation in the security technology sector. Last month, Intel Corp agreed to buy McAfee Inc for $7.7 billion. In May, Symantec Corp bought Verisign Inc’s payment authentication unit for about $1.3 billion [ID:nN19267038].
HP said on a conference call that buying ArcSight would not materially hurt its earnings per share in fiscal 2011. HP said it sees the ArcSight deal closing by year-end.
HP executives said there was no change to their acquisition strategy and that the company was comfortable with its balance sheet and ability to generate cash.
Hurd left HP after he was accused of filing inaccurate expense accounted related to a female contractor who worked for his office. He has been appointed co-president of Oracle.
ArcSight’s biggest shareholders are Fidelity management which has a stake of almost 15 percent, and Kleiner, Perkins, Caufield & Byers, which has a nearly 11 pct stake, according to Thomson Reuters data.
ArcSight shares were up $8.80 or 25 percent at $43.90 on Nasdaq after the news. Shares in HP dropped 6 cents to $38.13 in morning trade on the New York Stock Exchange.
Source: Reuters