LGTO/VRTS.. whichever way they go the investor loses! Investors Frown As Software Maker Veritas Sets Major Acquisition; Legato Systems Down 17% On Concerns Over Competition
NEW YORK -(Dow Jones)- Investors unloaded shares of Veritas Software Corp. Tuesday after the maker of software to manage computer-memory devices said it will buy about half of the software unit of Seagate Technology Inc. in a stock swap originally valued at about $1.5 billion.
Veritas said it would issue about 32.9 million new shares of stock to Seagate to acquire the subsidiary, and assume its employee options. Seagate, the Scotts Valley, Calif., company that is the No. 1 maker of computer disk drives, will own 35% of Veritas
after the deal.
In active midmorning dealings, Nasdaq-listed Veritas (VRTS) skidded $16.25, or 36%, to $29.125 on volume of 5.2 million, compared with the daily average of 647,200. Earlier, the shares hit an intraday low of $27.50. At the current Veritas price, the deal is now valued at about $958 million. Seagate shares (SEG) were holding to a tight range after closing Monday at $23.
Veritas said it would take a $500 million charge in the first quarter of 1999 and write off another $1 billion over the next three years to cover the cost of the acquisiton, which should be completed in January 1999.
Veritas, of Mountain View, Calif., and Seagate make software to manage disk-drives and other computer-memory devices, and the combined company will be the largest in that niche. Veritas's products focus on large corporate computer networks. Seagate agreed to sell network and storage-management operations that concentrate on smaller networks of desktop computers.
Shares of Legato Systems Inc. (LGTO), which also targets the market, weakened as analysts say competition will heat up. Around midmorning, Legato was down $7, or 17.5%, to $33 on volume of 1.9 million. Computer Associates International Inc. (CA) is also in the market, but its shares were higher.
The substantial price tag, for roughly 55% of the Seagate unit, demonstrates the relatively rich valuation of software compared to hardware. Seagate only got into the business four years ago, acquiring 10 companies, building total annual revenue for the
subsidiary to about $300 million and the division's work force to 1,600.
Company officials said the new Veritas would have revenue of roughly $367 million a year, growing faster than 50% annually. In the quarter ended June 30, Veritas reported net income of $8.5 million, or 17 cents a share on a diluted basis, on revenue of $48.1 million. For 1997, Veritas reported net income of $22.7 million, or 69 cents a share, on revenue of $121 million. Seagate said the software group being acquired had revenue of $152 million in 1997.
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