Network security and management software vendor Network Associates Inc. plans to acquire Trusted Information Systems Inc. (TIS) in a stock swap worth approximately $300 million, the companies announced today.
With the acquisition of TIS, which manufactures firewall, key recovery management and anti-hacker network monitoring software, Network Associates will be the largest provider of security software products in the world, said Bill Larson, CEO of Network Associates in a conference call today. Network Associates, which was formed last year by the merger of McAfee Associates Inc. and Network General Corp. and recently acquired Pretty Good Privacy Inc. (PGP), offers encryption, anti-virus and authentication software.
Under the terms of the agreement, Network Associates will offer .323 shares of its own stock for each share of TIS stock. That offer values TIS's shares at about $20 each, a 50 percent premium over TIS's overall stock value as of market close Friday, Larson said. Pending shareholder and regulatory approval, the deal should close in 60 to 90 days, he said. TIS stock closed Friday at $12 5/8 on the Nasdaq exchange; it was trading at $19 1/2 this morning.
Network Associates' main goal is to offer corporate customers an all-in-one security solution, from firewalls to anti-virus software to encryption, Larson said. With PGP and TIS, this strategy will now be possible, he said.
With TIS in its stable, Network Associates will go after not only the high-end corporate market, but also the government sector -- two areas where TIS has excelled in securing customers, Larson said. TIS has focused particularly on the high-end market with its Gauntlet firewall product and has a strong presence in the U.S. government via its key recovery technology and research and consulting services arm, Larson said.
The two companies share many of the same customers, as their products are complementary and don't overlap at all, Larson said. Some of TIS's and Network Associates' common customers include Shell, Microsoft Corp., Sprint Corp., Hitachi Ltd., Morgan Stanley and the U.S. Central Intelligence Agency (CIA), Larson said. As one company, TIS and Network Associates plan to continue serving these customers and go after new ones, offering suite-based solutions of several integrated security products, he said.
Sales-wise, TIS's 80-person-strong direct sales force will join with Network Associates' 800 salespeople to jointly push TIS and Network Associates products, according to Stephen Walker, CEO of TIS.
However, cost reductions are in order if the two companies are to merge smoothly, Larson said. In the next year, Network Associates will need to undertake cost reductions of about $2 million to $2.5 million a quarter in order to make the merger financially viable, he said. Larson was reticent when questioned about layoffs or other possible means to reduce costs, saying only that general and administrative departments would be hit the hardest and some leaseholds would be terminated.
The security software market is a competitive one, with CheckPoint Software Technologies Ltd. being the leading vendor in firewalls and big-name companies such as Cisco Systems Inc. and Microsoft Corp. offering their own security solutions to customers, Larson admitted. However, Network Associates plans to set itself apart by being the everything-to-everyone vendor, offering a full suite of security products for all parts of the network, he said. Other companies will be successful by remaining niche players, offering just encryption or just firewalls, he said.
"There is always room for a Burger King, but it is better to be a McDonald's," Larson joked.
Going up against Microsoft of Cisco, even if they serve a smaller part of the security market, is no doubt daunting to any company. However, Network Associates still believes its all-in-one approach will allow it to succeed, Larson said. "Neither Cisco or Microsoft has a full-fledged offering," he said.
The company's biggest competitor is CheckPoint, Larson admitted. But while Israel-based CheckPoint is number one in the corporate firewall market, it won't have as much luck with the U.S. government, he said. "CheckPoint will never be successful in the defense market given its Israeli connection," Larson said. Plus, in a year's time, "there won't be a firewall market, only an integrated security software market," he said.
In other news, Network Associates announced new pricing and product packaging for its Sniffer product line of network management software. The company will consolidate its Sniffer Total Network Visibility product line into three product suites aimed at solving specific corporate network management tasks - Portable Analysis, Distributed Analysis and Sniffer ServiceDesk.
The new Sniffer Portable Analysis Suite will allow on-site IT staff and field service organizations to share network analysis tasks, while the Distributed Analysis Suite will allow network managers to do proactive network analysis, reporting and planning. The Sniffer ServiceDesk Suite is a Web-management application designed to improve network service delivery over corporate internetworks or campus internetworks, Network Associates said.
