Boobirds Batter Symantec-Veritas

Updated from 1:38 p.m. EST

Within hours of the announcement that antivirus maker Symantec(SYMC Quote) and software storage vendor Veritas(VRTS Quote) would merge, skeptical investors shaved about a billion dollars off the value of the all-stock deal.

In recent trading, shares of Symantec were off $2.31, or 8.4%, to $25.07, while Veritas shed 30 cents, or just over 1%, to $27.81 a share. When the transaction was announced before the market opened Thursday morning, the deal was valued at $13.5 billion, making it the largest-ever software merger, eclipsing the hostile takeover of PeopleSoft(PSFT Quote) by Oracle(ORCL Quote) for $10.3 billion.

Symantec CFO Greg Myers downplayed the selloff, pinning much of the loss in share value on arbitragers. He conceded, however, that "the buy side probably doesn't understand the rationale for the merger. As it becomes clearer, we think the market will settle down," he said during an interview.

Myers chided Wall Street for its fear of "doing something different. Look around and you can see security companies out there that used to have market caps in the billions and now they are just a bag of bones." Symantec, he added, does not have that fear.

With total revenue of about $5 billion, a combined Symantec and Veritas will be the world's fourth-largest software vendor, after Microsoft(MSFT Quote), Oracle and SAP(SAP Quote).

Under the agreement announced by the two companies, 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 deal price represents about a 9.5% premium for Veritas shareholders. The deal is expected to close in the second quarter of 2005.

Symantec Chairman and CEO John Thompson will head the combined company, which still will be called Symantec; Veritas CEO Gary Bloom will become president and vice chairman.

Word of the merger leaked earlier this week after about a month of talks between the companies, which are located fairly close to each other in Silicon Valley. Symantec's stock has lost about one-fourth of its value since the news spread; it had closed Monday just under $33.

In essence, the companies are attempting to create a one-stop shop where businesses can buy software to store and back up their data, and protect it from hackers, viruses and other threats.

"Customers are looking to reduce the complexity and cost of managing their IT infrastructure and drive efficiency with fewer suppliers," said John W. Thompson, chairman and CEO of Symantec. "The new Symantec will help customers balance the need to both secure their information and make it available, thus ensuring its integrity."

Veritas CFO Ed Gillis said the merger will add to fiscal 2006 earnings. The company gave preliminary guidance for 2006, predicting revenue of $5 billion and EPS of 83 cents. Without the writedown for accounting purposes of $300 million of Veritas' deferred revenue, the combined company would earn 99 cents a share.