F5 Networks to buy storage tech firm for $210 mln
Bijoy Anandoth Koyitty - Mon Aug 6, 2007 2:58PM EDT
BANGALORE, Aug 6 (Reuters) - Network equipment maker F5 Networks Inc. (FFIV.O: Quote, Profile, Research) agreed to acquire Acopia Networks Inc. for $210 million in cash to diversify into storage technologies, but its shares fell as investors saw the deal diluting earnings.
Gross margins would initially be diluted up to 1 percent in 2008 due to the acquisition, Chief Financial Officer Andy Reinland said in a conference call with analysts.
The deal would hurt F5's earnings by 15 cents to 20 cents a share in 2008, Troy Jensen, an analyst with Piper Jaffray, said by phone.
However, the takeover will put F5 on a firmer footing against its biggest rival, Cisco Systems Inc. (CSCO.O: Quote, Profile, Research), which bought another storage management systems group, NeoPath Networks, in March, Jensen said.
Two analysts said the acquisition of file management storage technology provider Acopia would provide a new revenue opportunity for F5.
The company said Acopia would boost its 2008 revenue by $25 million to $30 million, which is up to 5 percent over analysts' forecasts for revenue next year.
While the acquisition of Acopia was expensive at more than seven times forecast revenue for 2008, it was probably justified, Jensen said.
"It turns out that the high end reflects about seven times next year's revenue, which is kind of steep but not given the kind of growth opportunities here," he said.
If F5 had waited for Acopia to go public before buying it, F5 would have had to pay more, Jensen said, pointing to high valuations on two storage companies, which went public in the past quarter - Bladelogic Inc. (BLOG.O: Quote, Profile, Research) and Data Domain Inc. (DDUP.O: Quote, Profile, Research).
Bladelogic is trading at around 7.4 times forecast sales for 2008, roughly in line with the multiple F5 has agreed to pay for Acopia.
Shares of F5 Networks fell 14 percent to $71.96 in afternoon trade on the Nasdaq.
F5 expects the deal to close on or shortly after Sept. 14. (Additional reporting by Saumyadeb Chakrabarty in Bangalore)
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