• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

EMC Strikes Deal to Buy Pleasanton, Calif., Software Firm

Posted on: Wednesday, 15 October 2003, 06:00 CDT

Oct. 15--Storage hardware company EMC will acquire Documentum, a Pleasanton content-management software company, for $1.7 billion, expanding EMC's presence in Silicon Valley and continuing its diversification into software.

EMC, the world's third-largest maker of computer storage hardware, has acquired nine software companies since 2000. In July, the Hopkinton, Mass., company agreed to buy Legato Systems of Mountain View for $1.3 billion.

The Documentum purchase, a stock deal announced by the two companies Tuesday, represents EMC's biggest purchase ever.

In a conference call Tuesday, Joe Tucci, president and chief executive officer of EMC, said Documentum's content-management software was an "exceptional" addition to EMC's portfolio.

Content-management software is used to organize unstructured data such as video clips, engineering drawings and e-mails that don't fit easily into traditional databases.

Created in 1990 as a spinoff from Xerox, Documentum reported revenue of $227 million in 2002 and a loss of about $1 million.

Its competitors include Interwoven of Sunnyvale, FileNet of Costa Mesa, Vignette of Austin and IBM of Armonk, N.Y.

David Goulden, an executive vice president at EMC, said his company believes that Documentum has the "most complete platform" in its field.

EMC plans to run Documentum as a separate division and does not anticipate laying off its 1,150 employees in any significant number, Goulden said.

"The entire management team is going to stay in place and they are going to continue to develop their own sales channels," he said.

Analysts described the deal as "positive," provided the acquisition does not distract management attention from EMC's core hardware business.

"It's a small-risk situation," said Brian Babineau, an analyst at Enterprise Storage Group. "EMC has a significant war chest of cash and capital based on their stock price, and they went out and bought a company that complements a small portion of their product line."

One of the stars of the tech boom, EMC saw its stock increase in value more than 15 times from 1998 through 2000. But more recently, the tech recession combined with stiff competition from Hitachi Data Systems, Hewlett-Packard and IBM eroded sales and profits. Annual sales fell from $8.9 billion in 2000 to $5.4 billion in 2002, and EMC's gross profit margin withered from 58 percent to 39 percent. A year ago, EMC's stock price stood at roughly the same level as in 1998.

But as sales picked up this year, so did investor interest. EMC's stock has more than tripled in the past year. EMC had about $6.1 billion in cash and investments as of June 2003.

EMC will give Documentum shareholders 2.175 shares in EMC for every Documentum share. The deal values Documentum at more than $31 a share, a premium of nearly 30 percent over Documentum's closing share price Monday.

Documentum shares rose 17 percent to $28.54 in regular trading Tuesday after the early morning announcement. EMC's shares fell 8 percent to $13.34.

EMC also announced preliminary results Tuesday for the quarter ended in September. The company said it earned a profit of 7 cents a share on sales of $1.51 billion. That compares with a loss of 2 cents a share on sales of $1.26 billion one year ago. Analysts had expected it to earn 4 cents a share on sales of $1.49 billion.

-----

To see more of the San Jose Mercury News, or to subscribe to the newspaper, go to http://www.mercurynews.com.

(c) 2003, San Jose Mercury News, Calif. Distributed by Knight Ridder/Tribune Business News.

EMC, DCTM, XRX, IBM, 6680, FILE,

More News in this Category