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Originally published Friday, December 17, 2004 at 12:00 AM

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Symantec to acquire Veritas in an all-stock transaction

Computer security giant Symantec is buying storage and backup program specialist Veritas Software to create the world's fourth-largest software maker, marking the latest merger...

The Associated Press

SAN FRANCISCO — Computer security giant Symantec is buying storage and backup program specialist Veritas Software to create the world's fourth-largest software maker, marking the latest merger in an industry trend that's expected to compress the competition to a few juggernauts.

The all-stock acquisition, announced yesterday, was initially valued at $13.5 billion, but the price quickly plummeted amid investor worries that the deal signals a sales slowdown at Symantec, the maker of the popular Norton-branded software that fights computer viruses.

Even as the stock market puzzled over why Symantec decided to branch outside computer security to buy a slower-growing company in Veritas, some analysts praised the deal for creating a more diversified firm better equipped to compete with the likes of Microsoft and IBM.

With the Veritas purchase, Cupertino, Calif.-based Symantec hopes to create a one-stop shop that guards against computer viruses and ensures the reams of vital information stored on corporate networks remain accessible.

Both specialties are in high demand as computer hackers become more proficient in exploiting flaws in Microsoft's Windows operating system, and computers become the indispensable information hubs of businesses and households alike.

"This is a profound event for the entire industry," Symantec CEO John Thompson told analysts during a conference call yesterday. "I think together we will become a very powerful company."

Investors aren't convinced. Symantec's shares plunged $2.25, or 8 percent, to $25.13 yesterday. Veritas' shares fell 12 cents to $27.99. The decline shaved about $1.1 billion from the deal's initial value.

American Technology Research analyst Donovan Gow said the market's negative reaction stems from perceptions that Symantec's acquisition is being driven by a weakening sales outlook for its security software. Those jitters have been amplified by Microsoft's expected expansion into the market with its own anti-virus program. "This (deal) doesn't mean security sales are going to be derailed, but the incredible growth rates (of recent years) may be behind us," Gow said.

Thompson, who will run the combined company, tried to allay the concerns yesterday.

"This is not a defensive move by any stretch of the imagination. It's an offensive move," he told analysts.

After the deal closes in next year's second quarter, Symantec expects to have annual revenue of $5 billion. The only software makers with a higher sales volume are Microsoft, Oracle and Germany-based SAP.

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The deal marks the second blockbuster merger of major software makers this week — a phenomenon widely expected to continue as companies try to adapt to a maturing industry and cater to their customers' desire to deal with fewer vendors.

Oracle got the acquisition ball rolling earlier this week with a $10.3 billion takeover of bitter rival PeopleSoft.

Unlike most corporate mergers, relatively few layoffs are expected after the 6,000-employee Symantec and 7,000-employee Veritas join forces.

The divergent markets of the two merging companies make it unlikely their proposed marriage will encounter the antitrust obstacles that complicated Oracle's bid for PeopleSoft.

Symantec's major competitors in the security market include McAfee and Computer Associates, while Veritas has been battling with EMC, IBM and Computer Associates in the data storage and backup field.

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