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EMC to Buy RSA for Nearly $2.1 Billion

Posted on: Thursday, 29 June 2006, 21:00 CDT

By MARK JEWELL

BOSTON - Data storage provider EMC Corp. said Thursday it will buy RSA Security Inc. for nearly $2.1 billion, paying a hefty premium to overcome rivals who also were eager to snap up RSA's encryption software and computer authentication products.

EMC will pay $28 for each share of Bedford-based RSA Security, or a 22 percent premium above the $22.88 price at which RSA's shares closed Thursday on the Nasdaq before the deal was announced.

RSA's stock closed up 18 percent after the company confirmed in the morning that it was in talks with unidentified parties. In after-hours trading, RSA's shares rose another $4.37 to $27.25 - the stock's highest level since 2001 - while EMC's shares fell 37 cents, or 3.3 percent, to $10.88, in after-hours trading.

EMC's top executive, Joe Tucci, told analysts in a conference call that "a very competitive situation" emerged after RSA recently sought out prospective buyers interested in expanding their information security offerings.

In response to an analyst's question why EMC chose to buy RSA at a big premium rather than form partnerships with it, Tucci said, "RSA wasn't going to be around" and would be quickly snapped up by a rival.

Several analysts questioned whether EMC was paying too high a price for RSA - the company's biggest-ever acquisition - and whether EMC might realize better returns by stepping up an existing program to buy back shares of its long-stagnant stock.

Tucci said the deal will yield long-term gains, and address increasing demand from EMC's corporate customers to use encryption and other techniques to better secure data.

"This was a missing piece in the information infrastructure puzzle," Tucci said. "If we do this right, I absolutely, positively, believe there is upside."

Tucci, EMC's chairman, president and CEO, and Art Coviello, RSA's president and CEO, did not identify other companies that expressed interest in buying RSA, a 20-year-old company with about 1,200 employees and $310 million in revenue last year compared with EMC's nearly $10 billion.

RSA is well-known for an annual security conference that it stages, as well as millions of business card-sized "SecurID" tokens that display an ever-changing six-digit code computer users must type to gain access to networks. RSA's three founders were Massachusetts Institute of Technology professors who helped develop a seminal method of cryptography.

The auction to buy RSA was made public after The New York Times on Thursday reported a deal possibly worth $1.8 billion could be reached in a few days with EMC or at least one other bidder. The report prompted RSA to issue a news release confirming it was in talks.

EMC and RSA said they expect to close the acquisition in the third quarter or early in the fourth quarter, subject to regulatory approvals and other conditions. Coviello will become an executive vice president at EMC, and president of the Information Security Division. The division will operate from RSA's headquarters in Bedford, 35 miles from EMC's Hopkinton headquarters.

EMC said it expects the deal will shave 3 cents per share off its earnings next year, and will not have a material impact on its 2008 earnings.

EMC is the largest provider of data storage systems for business customers, with rivals including Hewlett-Packard Co., IBM Corp., Hitachi, Dell Inc., Sun Microsystems Inc. and Network Appliance Inc.

EMC's stock has languished in recent years as the company has made a string of acquisitions to expand from storage hardware into more lucrative services and software to help manage data and keep it secure. The RSA deal is EMC's most expensive recent acquisition from a list that includes VMware, Dantz, Documentum, Legato, Rainfinity and Captiva.

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On the Net:

EMC Corp.: http://www.emc.com

RSA Security: http://www.rsasecurity.com

Source: Associated Press/AP Online

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