RSA Security Buys PassMark

It pays $45 million in cash and stock.
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Updated from 11:56 a.m. EDT

RSA Security

(RSAS)

added another piece to its authentication arsenal on Monday when it purchased privately held

PassMark Security

.

RSA said in a press release that it is spending $44.7 million to purchase the Menlo Park, Calif.-based PassMark. That includes $9 million in cash and about 2 million shares of RSA. Under generally accepted accounting practices, the deal will be valued at about $48.2 million.

RSA shares were recently up 5 cents to $19.60.

The security company is also reserving $2.7 million for employee retention and termination costs. In addition, it will set aside 80,000 shares of common stock for the assumption of PassMark's stock option plan.

For the second and third quarters of 2006, the transaction will be "mildly dilutive", said RSA, and will add to earnings in the fourth quarter. The acquisition should add between $4 million and $5 million in revenue for the remainder of 2006. For 2007, the company expects PassMark to generate $10 million to $15 million in sales.

RSA said this purchase will help bolster its presence in the financial sector, and help protect customers, merchants and transactions in online banking and e-commerce.

"As financial institutions of all sizes race to address the regulatory community's guidance on stronger authentication, this acquisition -- with its ability to expand the RSA eFraudNetwork, broaden our distribution network, and add deep domain expertise in consumer authentication --- significantly strengthens our position in the market," Art Coviello, president and CEO of RSA Security said in a statement.

RSA also announced it appointed PassMark's chairman, Bill Harris, to its board. He is the former CEO of

Intuit

(INTU) - Get Report

and

eBay's

(EBAY) - Get Report

PayPal division.

In addition, RSA also updated its guidance for the second, or current, quarter, forecasting revenue between $89 million and $94 million, up from $88 million to $92 million. Its EPS guidance dropped to 5 to 9 cents, down from the previous estimate in the range of 6 to 10 cents. Excluding certain items, the company now expects to make 13 to 15 cents a share for the second quarter, off its previous estimate of 14 to 16 cents a share.

A Thomson First Call survey of analysts had expected the company to earn 15 cents a share on revenue of $90.1 million.