Veritas's Future Is Scrutinized

Wall Streeters weigh in on the potential impact of a $13 billion sale of Veritas to Symantec

December 15, 2004

4 Min Read
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News that Veritas Software Corp. (Nasdaq: VRTS) could become a $13 billion snack in the software food chain, after years of gobbling smaller companies, has surprised the storage industry.

According to a report in the New York Times this morning, Symantec Corp. (Nasdaq: SYMC) is on the verge of completing negotiations to purchase Veritas. The deal would create a software company with more than $4 billion in revenue (see Veritas to Be Sold, Paper Says)

Neither company has commented on the report, but it has sent ripples of speculation through the storage industry. Some say other suitors will be knocking on Veritass door to raise that $13 billion price tag.

Veritas has created lots of acquisition news in recent years -- as the buyer, not the seller. It paid $609 million for application performance management vendor Precise Software Solutions in June 2003 and $225 million for email archiver KVS last August. The company's also picked up a string of smaller companies along the way (see Veritas Picks Up Precise, No Brainer: Veritas Buys KVS, and Veritas Buys More Utility Power).

There had been speculation that Veritas might be a target for acquisition after its revenue fell in the second quarter of this year, but such talk quieted after the company bounced back last quarter (see Veritas Rides Earnings See-Saw and Veritas Rebounds).“I’m surprised that Veritas is being consolidated rather than being the consolidator,” says financial analyst Steve Berg of Punk Ziegel & Co.

The partner in this dance also seems a bit odd. Symantec, maker of the Norton series of antivirus products, has little storage presence outside of some backup products for IP SANs and NAS servers (see IP SANs Are Sizzling and Snap NAS Gets Protection). Symantec also is around the same size as the company it wants to buy. Veritas CEO Gary Bloom has said his company is on track for a $2 billion revenue year, while Symantec has reported $1.8 billion in revenues.

“I’ve been talking to a lot of people about possible storage company acquisitions, and Symantec has not been brought up once,” Merrill Lynch & Co. Inc. financial analyst Shebly Seyrafi says.

Now that Veritas's name is out there as an acquisition candidate, Seyrafi suspects other companies might get into the bidding. One possible suitor is EMC, which had 31.8 percent share of the storage software market compared to 21.7 percent for Veritas. (However, Veritas is the market leader in backup software.) Seyrafi also sees as possible takeover candidates Hitachi Data Systems (HDS), IBM Corp. (NYSE: IBM), Microsoft Corp. (Nasdaq: MSFT), and Oracle Corp. (Nasdaq: ORCL), which completed a $10.3 billion acquisition of PeopleSoft Inc. (Nasdaq: PSFT) on Monday (see The Price Is Right for PeopleSoft).

“Veritas is a rare special entity -- one of the few remaining large software storage pure plays out there,” Seyrafi says. “If Veritas goes to Symantec, it would be difficult to buy its storage business, unless somebody buys all of Symantec. So this creates a sense of urgency.”It doesn’t sound like the folks in Hopkinton, Mass. are interested in Veritas. They’re not shedding any tears either over the possible sale of their major software rival. “The demise of Veritas is inevitable,” an EMC spokesman says. “Niche independent players like Veritas will struggle to remain relevant.”

Symantec’s pursuit of Veritas shows it is interested in moving beyond its core-security business into backup and recovery. It's a strategy with some negative precedents: Enterprise software giants BMC Software Inc. (NYSE: BMC) and Computer Associates International Inc. (CA) (NYSE: CA) haven’t had much success after going down the storage road, but they didn’t buy an established player such as Veritas (see BMC Folds Storage Unit).

ThinkEquity Partners financial analyst Selhun Kong, who follows Symantec, wrote in a research note today that a Veritas acquisition would change the dynamics of how Symantec competes. Kong’s not sure if that’s good or bad, though.

“We believe it is too early to make a definitive call on the rumored acquisition,” Kong wrote. “If true, we think it is a gutsy move with good long-term potential but equally negative integration risks.”

A Veritas spokeswoman said the company would not comment on the possibility of the merger, while Symantec did not return phone calls seeking comment.— Dave Raffo, Senior Editor, Byte and Switch

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