EMC's Eye on RSA Security

Reports that RSA Security (RSAS) may serve itself up to EMC(EMC) in a merger surprised many watchers on Wall Street who had expected the storage giant's acquisition behavior to be more restrained.

In a statement earlier Thursday, RSA confirmed that it was in "negotiations with parties regarding a potential strategic transaction." This followed a New York Times report stating that the storage company EMC was close to a deal. The paper also said there may be a second suitor vying for the company.

EMC had no comment on the news.

Shares of RSA Security recently shot up 18.6%, adding $3.60 to $22.96 in recent trading; EMC was off 14 cents, or 1.2%, to $11.11.

Punk Ziegel analyst Steve Berg said RSA's encryption technology would enhance EMC's Clariion and Symmetrix networked storage products, adding that RSA's digital certificates would complement EMC's Documentum software.

"On the other hand," Berg said, "I'm pretty sure that EMC was pretty clear that they were pursuing this string of pearls strategy -- a lot of tiny acquisitions." Given RSA's market cap [of $1.7 billion before the reports], "this seems more like a brooch than a string of pearls."

"It's going against what management said they might be pursuing," Berg said.

However, EMC's apparent decision to acquire a security provider isn't surprising. At the company's analyst day in June, CEO Joe Tucci highlighted five areas that he believes could become "$1 billion businesses" for EMC; one of them was security.

EMC has made a number of relatively large acquisitions in recent years, although none has approached the size or scope of multi-billion blockbusters that have rocked the worlds of enterprise software and media. Indeed, in addition to Tucci's aforementioned "string of pearls" acquisition strategy, he also has said he prefers "tuck-in" acquisitions to blockbusters.