IBM Extends Shopping Spree

The consolidation in the security software market raged Wednesday with news that IBM (IBM Quote) is buying Internet Security Systems (ISSX Quote) for $1.3 billion in cash.

At $28 a share, the price represents an 8% premium for ISS shareholders as of Tuesday's closing price. ISS investors cheered the news, and the stock popped 6.4%, adding $1.65 to $27.65. The company saw a healthy run on its stock last month on speculation that IBM was eyeing ISS.

IBM shares barely moved, dipping 25 cents to $78.70 as the broader market turned lower.

"It's a good deal for everybody here," says security industry analyst Andrew Jaquith of the Yankee Group. "It's a good deal for IBM's customers and certainly a good deal for ISS."

Analysts agreed that the latest deal should bolster the security sector as a whole. Currently, "you have too many companies competing for market share," says Daniel Ives of Friedman Billings Ramsey, which makes a market in ISS. "As companies get bought and you have less players in the field, you should see more of the stand-alone vendors benefiting."

Val Rahmani, general manager of infrastructure management services for IBM Global Services, said in a statement that security and regulatory requirements have become "mission-critical" priorities for IBM clients. "This acquisition will help IBM to provide companies with access to trained experts and leading-edge processes and technology to evaluate and protect against threats and enforce security policies," she noted.

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