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Check Point Buys Protect Data

The purchase is valued at $586 million.

Updated from 9:13 a.m. EST

TEL AVIV, Israel -- Israeli security software maker

Check Point

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made an offer to purchase the Swedish company

Protect Data AB

for about $586 million.

Protect Data is the owner of a developer of enterprise data-security software, Pointsec Mobile Technologies. Pointsec, which specializes in protecting enterprise and government organizations' mobile devices using automatic data encryption, received an offer from Check Point reflecting a 39% premium to its average closing price over the last 90 trading days.

The Protect Data board agreed to the offer, which is also supported by Protect Data's largest shareholder, Monterro Holding. The deal requires the approval of 90% of shareholders.

After a failed attempt to acquire the U.S. intrusion-detection company


earlier this year, the latest effort offers investors a long-awaited sign that Check Point has finally launched the next phase of its corporate strategy -- the addition of a data security option to protect corporate information over laptops, desktop PCs, PDAs and smartphones.

"At a first glance, this seems like a very positive move for Check Point," says Gary Raskin, an analyst at Psagot Ofek, a Tel Aviv-based asset manager who covers the stock. "I was almost about to give up on the company after the Sourcefire deal blew up. This is something we were waiting to see for a long time."

Raskin is also upbeat about the fact that Check Point has finally put its heaping mountain of cash to work, as this deal represents roughly one-third of the company's free cash.

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During the last couple of years, analysts and investors were getting increasingly restless about the company's stagnant sales growth. Much of the criticism was directed toward Check Point's founder and CEO, Gil Shwed.

In an piece published in


a few weeks ago, Richard Steinnon, chief research analyst at IT-Harvest, criticized Shwed for failing to see the opportunities in the growing network-security market, despite a challenge from


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"I have been perplexed by Check Point's actions, or rather lack of actions, for the last seven years," Steinnon wrote in the article. "Do you not see that there are opportunities in network security that surpass the existing size of the market? Do you not understand that your current customers are less well-protected from outside threats than they were when they first became your customers? Do you not see the warning signs when you lose your major accounts to competitors?"

The Pointsec acquisition, however, indicates that Shwed did in fact understand the market and responded to his critics with a larger deal than anticipated.

"With businesses facing increasingly severe consequences from data breaches and a stricter regulatory environment, it is apparent that protection must extend beyond the infrastructure to the data itself," said Shwed. "Acquiring Pointsec is the first step in Check Point's vision to secure all enterprise data."

On a conference call with Israeli reporters, Shwed said the deal is one of many steps the company plans to expand its core products and its market leadership.

To Raskin, the deal's price seems fairly high, as Pointsec is trading at roughly 37 times next year's projected earnings.

On the other hand, Pointsec reports strong sales growth numbers. For the first nine months of 2006, revenue grew by 92% to $52.4 million. After-tax income for the same time period ballooned 166% to $8.3 million.

Check Point's adjusted earnings, on the contrary, have either dropped or were unchanged in each of the last three quarters compared with the first three quarters of 2005. Its share price is at the same level as one year ago. Check Point closed Friday at $22.27.