This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

RSA Gets Sticker Shock

Shares of RSA Security (RSAS) dropped 14% as Wall Street jeered the hefty price tag on an acquisition.

The Bedford, Mass., company also set plans for a big restructuring and said its finance chief is leaving to take another job. RSA shares dropped $1.84 in heavy trading to $11.35.

RSA said it would buy closely held Cyota, a New York City-based company that develops online security software for financial institutions, for $145 million.

"Today, RSA Security is the leader in protecting online identities and digital assets," said RSA chief Art Coviello. "Through our combination with Cyota, RSA Security will become the leader in the protection of consumer identities and remote transactions."

But the $145 million price tag amounts to nearly half of the $303 million in cash RSA had on hand at the end of September.

The deal looks pricey in other ways, too. RSA said it expects Cyota to contribute between $22 million and $25 million to the top line in 2006. That gives the sale a multiple of roughly six times forward sales, well above the usual range of two or three times for acquisitions in the security sector, says analyst Daniel Ives of Friedman Billings Ramsey, which doesn't have a banking relationship with RSA.

The deal is a "very expensive (and dilutive) transaction in a still unproven segment of the authentication market," Ives says. "With the company doling out roughly half of its treasure chest for Cyota, we are disappointed and would have liked RSAS to pursue acquisitions in other areas of the authentication market with cheaper price tags."

The acquisition is expected to close in 30 days, pending regulatory approval.

RSA said the restructuring will result in a charge of $10 million to $14 million beginning in the current fourth quarter and continuing for a year. Even so, RSA stood by its current fourth-quarter guidance for a non-GAAP profit of 15 cents to 19 cents a diluted share on sales of $78 million to $82 million.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
AAPL $123.25 0.00%
FB $83.30 0.00%
GOOG $548.34 0.00%
TSLA $185.00 0.00%
YHOO $45.10 0.00%


DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs