Start the conversation
Comment on This Story
Or to contact Money Morning Customer Service, click here.
Hewlett-Packard Co. (Nasdaq: HPQ) yesterday (Monday) took another step toward becoming a more diverse software-based company by agreeing to buy ArcSight Inc. (Nasdaq: ARST) for about $1.5 billion in cash.
Palo Alto, California-based H-P will pay ArcSight investors $43.50 a share, a 24% premium over the stock's closing price on Sept. 10. ArcSight makes security software to help companies identify suspicious activity on their corporate networks.
The deal is the latest in a string of acquisitions designed by H-P to lower its reliance on lower-margin computers and servers.
"HP wants to expand from their traditional hardware offerings -- printers and computers and servers -- and they've gone into more services and software," Dave Novosel, an analyst at corporate-bond research firm Gimme Credit in Chicago, told Bloomberg News. "This is something that's a little bit different for H-P. This is not where they've had a strength in the past."
H-P in April kicked off the spending spree by buying 3COM for $2.7 billion and smartphone-maker Palm Inc. for $1.2 billion. H-P also acquired Fortify Software Inc., another security firm, and Stratavia Inc., a database and application automation company based in Denver. Terms for those purchases weren't disclosed.
ArcSight is H-P's second purchase since it lost Chief Executive Mark Hurd last month. The first was its acquisition of storage-technology company 3PAR Inc. (NYSE: PAR), which it won after a bidding war with rival Dell Inc. (Nasdaq: DELL). H-P agreed to pay $2.35 billion, or $33 a share, for 3PAR – almost double the $18 a share that Dell had initially agreed to pay.
It was Hurd who began moving H-P out of its core personal computer and server system businesses into software, networking, storage and services to take advantage of the higher margins typical of those sectors.
H-P executives have said the company will continue the expansion strategy, and they are following through with the acquisition of ArcSight.
Cupertino, CA.-based ArcSight makes software that monitors corporate networks for unusual activity, including hackers attempting to break into a system. Its products are used by more than 1,000 customers to help prevent cyber attacks and to spot potential policy violations.
"From a security perspective, the perimeter of today's enterprise is porous, putting enormous pressure on clients' risk and compliance systems," Bill Veghte, H-P's executive vice president of software and solutions, said in a statement. "The combination of H-P and ArcSight will provide clients with the ability to fortify their applications, proactively monitor events and respond to threats."
Shares of ArcSight were trading at around $28 on Aug. 26, when The Wall Street Journal first reported that the company was quietly shopping itself to a handful of big technology companies.
A number of big technology firms showed interest, and the bidding quickly surpassed $40 a share, people familiar with the matter told The Journal.
ArcSight, which went public in 2008, reported revenue of $181.4 million in the fiscal year ended April 30, up 33% from a year earlier. Profits for the fiscal year grew to $28.4 million from $9.9 million a year before.
Large information-technology providers have been on the hunt lately as they look to offer a wider variety of products. Companies with software that helps businesses securely manage data have been especially in demand.
Chip maker Intel Corp. (Nasdaq: INTC) last month agreed to buy security specialist McAfee Inc. (NYSE: MFE) for $7.7 billion.
News & Related Story Links:
- Bloomberg:
HP to Buy ArcSight for $1.5 Billion to Gain Software - Wall Street Journal:
H-P Buys ArcSight for $1.5 Billion - Money Morning:
HP, Dell Land In Pricey Bidding War as Tech Sector M&A Heats Up - Money Morning Archives:
Mergers and Acquisitions Category - Money Morning:
HP Shakes Up Smartphone Market With $1.2 Billion Palm Buyout