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Mission Critical Software, NetIQ Plan $1.42 Billion Merger

Mission Critical shareholders will receive an 11% premium.

Updated from 9:52 a.m. EST

Mission Critical Software





said Monday that they would merge in an all-stock deal valued at $1.42 billion.

Mission Critical Software provides software that manages the


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Windows NT- and Windows 2000-based operating systems used by businesses, while NetIQ is focused on the performance of applications that run on the operating systems.

Shares of NetIQ fell 5 1/2, or 7%, to close at 68. Mission Critical Software's stock dropped 19/32, or 1%, to 61 21/32.

The companies are calling the transaction a merger of equals, but Mission Critical Software shareholders will receive a premium of 11% over the stock's closing price Friday of 62 1/4. Under the terms of the agreement, NetIQ will exchange 0.9413 share for each Mission Critical Software common share.

After completion of the deal, expected to close during the fourth quarter which ends June 30, the stockholders of each company will own 50% of the new company. The new company will have a new name and a new stock symbol.

Michael Bennett, currently chairman, president and chief executive of Houston-based Mission Critical Software, will be executive chairman of the new company, while Ching-Fa Hwang, president and chief executive of Santa Clara, Calif.-based NetIQ, will be chief executive of the new company.

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The headquarters of the new company will be in Santa Clara, Calif., with key executives, development and operational personnel based in Houston. For the 12 months ended Dec. 31, the two companies had combined revenue of about $63 million and about 375 employees.

"By bringing together our two companies, their complementary product offerings and target markets -- and by leveraging the combined intellectual property and financial and human resources -- we will be able to offer customers the solutions necessary for comprehensive end-to-end management of their Windows 2000-based infrastructure," said Hwang in a statement.

The timing for the deal is appropriate as each company was poised to encroach on the territory of the other. "More so, Mission Critical was entering NetIQ's market by coming out with a product monitoring application," said analyst Paul Rodriguez of

C.E. Unterberg, Towbin

. He rates NetIQ a buy and his firm helped to underwrite the company's secondary offering in December.

"They would have become increasingly competitive over the next two years," added analyst Jim Mendelson of

Wit SoundView

. "Now they can leverage their research and development much more. Instead of being duplicative, they can extend their depth and range." He rates both Mission Critical and NetIQ as buys and his firm participated in the initial public offering and secondary offering for Mission Critical as well as the secondary offering for NetIQ.

Both companies went public only recently, Mission Critical on Aug. 5 and NetIQ on July 30. Therefore, "this is a timely point to merge because they are both relatively young companies. The opportunities to merge their cultures are easier," Mendelson said.

"This is also a good point in the competitive landscape for a merger," he commented. Rivals

BMC Software



Computer Associates International

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are both in the process of acquiring or integrating companies and "are not as prepared to focus on NT." Meanwhile,


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is hardly focused on NT either.

Last spring, BMC acquired both

Boole & Babbage


New Dimension Software

. Computer Associates announced in mid-February that it would buy

Sterling Software

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in a $4 billion stock deal.

"Both companies

Mission Critical and NetIQ on a stand-alone basis would have been tactical players," Mendelson said. "Now they have crossed the bridge to strategic players."

Chase H&Q

advised Mission Critical Software and

Credit Suisse First Boston

advised NetIQ.

Separately, Mission Critical Software announced Monday that it has agreed to acquire privately held

Ganymede Software

, a provider of software for the management of clients, servers, applications and the network as an integrated system, for about $171.2 million.

The acquisition is also expected to close during the fourth quarter, either at or prior to the close of Mission Critical Software's merger with NetIQ. Chase H&Q advised Mission Critical Software and

Robertson Stephens

advised Ganymede.

Ganymede booked about $10 million of revenue last year.