Under the agreement, Axent shareholders will receive half a share of Symantec common stock for each share of Axent common stock. Based on Symantec's closing price of 63 11/16 on Wednesday, the swap would value Axent shares at $31.84. This represents a 67% premium over Axent's Wednesday closing price of 19 1/16. Symantec said it will issue close to 15.3 million shares.
Symantec stock finished Thursday down 21%, or 13 7/16, at 50 1/4. Axent climbed 26%, or 4 15/16, to 24.
While antivirus programs like Symantec's Norton apprehend codes hostile to a system, "security" software grapples with hackers trying to steal data or wreak havoc. Data security these days includes firewalls designed to keep intruders out, and intrusion detection products.
Symantec's strength has been in its antivirus offering and personal firewall, while Axent's products largely assess a system's vulnerability and detect intrusions. The two companies called their respective product lines clearly complementary.
Axent adds corporate, or server-based, firewalls to Symantec's personal firewalls. Axent has award-winning, host-based technology; Symantec's products are largely network-based. Axent lacks an antivirus program; Symantec's is No. 1. With its February purchase of L3 Network Security, Symantec acquired network-based products to find system weaknesses. Meanwhile, Axent has full-blown intrusion detection at the corporate level.
Symantec also viewed the deal from another angle. Winning more enterprise clients -- and hence higher margins -- has been a top priority for Cupertino, Calif.-based Symantec for the past six quarters. Symantec's portfolio is filled with such clients.
As a bonus, Axent already thrives in an arena that Symantec decided in December to enter. Axent nets 30% of its revenue from the consulting and managed services it provides its customers. During the past quarter, Axent closed the largest managed security services contract to date -- $20 million with
in Europe. "It provides Symantec early momentum into managed services," said Symantec chairman, president and CEO John Thompson, "with a complete offering, and a $20 million, five-year contract win."
criticized Symantec's tactics, saying, for instance, that virus protection and intrusion detection have always been distinct pieces in corporate architecture. "It appears they're going to try to combine it and be everything to everyone," said Sal Viveros, marketing director of Network Associates. "We don't believe it will work."
Viveros said Network Associates has two sales forces to address the two areas separately, as well as more years of experience. "We've got quite a technological lead -- where it makes sense."
Moreover, Viveros said Network Associates had envisioned the growth of the security market in 1997, when it made a string of acquisitions. "We think again Symantec is following our lead."
Symantec said it anticipates closing the transaction by January, following the approval of shareholders and regulatory agencies.
For six months after the deal's close, Symantec warned, the acquisition will dilute cash earnings per share by 15 to 20 cents. Analysts polled by
First Call/Thomson Financial
had predicted earnings of 73 cents a share for the first three months of the transition period, 74 cents for the next. The company predicted no significant change in the composition of its liabilities.
The combination will turn accretive to Symantec's cash earning by the quarter ended 2001, Symantec said. Operating expenses as a percentage of revenue will return to the current range of 59% to 60% after the acquisition passes the transition period some time in the quarter ended June 2001.
"This is about growing the overall market opportunity," Thompson said, "and driving faster, larger, top-line revenue performance."
Looking beyond the transition period, Thompson said, "We expect the combination to deliver robust revenue growth over the next several years."
The company said it expects the joined operation to have pro forma revenues of about $1 billion for the 12 months ending March 2001. By the quarter ending March 2001, Symantec projected, more than 60% of the year's revenues will be from enterprise customers. Symantec also forecast an increase in revenue growth from 20% in fiscal 2001 to 27% in fiscal 2002 and fiscal 2003.
The potential market for the combined companies will increase from $5 billion to $7 billion once the acquisition is complete, the company said. It cited estimates from
International Data Corporation
that by 2003 the $1.5 billion content security market will grow to $4 billion, the $500 million firewall market to $2 billion and the $150 million security assessment and detection market to $1 billion.
Donaldson, Lufkin & Jenrette
served as financial adviser to Symantec, and
Heller Ehrman White & McAuliffe LLP
served as legal counsel.
advised Axent financially, while
Shaw Pittman Potts Trowbridge
provided legal counsel.