More questions than answers in Symantec/Veritas deal

Among them: How will the companies' products be integrated

Security company Symantec Corp.'s acquisition of Veritas Software Corp. could benefit customers and shareholders of both companies, but details of the $13.5 billion deal leave some important questions unanswered, according to executives and industry experts.

The acquisition will transform Symantec into an enterprise software powerhouse with combined revenue estimated to be $5 billion in 2006. However, it also leaves issues unsettled, including the question of how the companies' products will be integrated and the eventual roles of current Veritas CEO Gary Bloom and Symantec President and Chief Operating Officer John Schwarz, who will share the presidency of the combined company.

Mountain View, Calif.-based Veritas sells backup, archiving and file-system software. Cupertino, Calif.-based Symantec sells software to protect home and office computer systems and networks. The deal is expected to close in the second quarter of 2005, according to a joint announcement from the companies (see story).

Symantec and Veritas executives hope the combined company will help its enterprise customers respond to two burning issues: data integrity and data availability, according to Jeremy Burton, executive vice president of the data management group at Veritas.

"The two biggest risks that [CIOs] face is people breaking into their systems or those systems failing. If we can solve those problems, we're going to take a lot of worry off the CIO's plate," he said.

New state and federal data privacy regulations in the U.S. demand strict information integrity. At the same time, the move by many companies to highly available Web-based services demands strong IT infrastructures. The new company will focus on both of those needs, integrating storage management and security management technologies and services for organizations that want resilient, highly available data storage systems that are also secure, said Schwarz.

Analysts agree that security and storage technology go well together.

"Security is in the top three on the priority list of every major IT director -- viruses, security and managing data," said Scott Whitehead, an analyst at Technology Business Research Inc. in Hampton, N.H. "I think it's a good union."

The acquisition is in line with Symantec's decision to emphasize data integrity in recent months, said Chris Christiansen, an analyst at Framingham, Mass.-based market research company IDC. The acquisition also gives Symantec a much larger stake in the enterprise software market, which will serve the company well as Microsoft Corp. moves to integrate more security technology with its Windows operating system.

"Microsoft clearly has to do something to improve the security posture of its software, and that has a potentially harmful effect on antivirus vendors and other client security products," he said.

However, Symantec's purchase raises at least as many questions as it answers.

The companies have only begun to envision connections between their two product portfolios and won't begin significant planning until after the acquisition has closed in mid-2005, and there will be no real product integration before 2006, Schwarz said.

The Veritas purchase throws a shadow of doubt over other recent Symantec acquisitions, including the September 2003 purchase of storage management software vendor PowerQuest Corp. and the October 2003 purchase for $100 million of ON Technology Corp., Christiansen said.

Integration of the companies' diverse product portfolios will be easier than most people think because those products already talk to common systems management platforms such as IBM's Tivoli and Hewlett-Packard Co.'s OpenView, Schwarz said.

Still, the company will need to combine Symantec's security management architecture and Veritas' storage management tool set and may consider using Web services and network-based application programming interfaces to create a common management interface that hides the disparate security and storage technology underneath, he said.

Symantec must also work to keep its consumer security software business healthy and add technology that keeps it ahead of Microsoft, which gradually incorporates more security products into its offerings, Christiansen said.

"They can't let the consumer business whither on the vine -- Wall Street would club them for it," he said.

Also unclear are the roles of Schwarz and Veritas CEO Gary Bloom in the new company. A statement by Symantec and Veritas said that Symantec CEO John Thompson would continue as head of the new company and named Bloom as the company president. However, Schwarz and Bloom are actually slated to share the presidency, and the COO position will likely be discontinued once the deal is finalized, Schwarz said.

Schwarz expressed confidence that he and Bloom will be able to work together harmoniously and that the merged company could operate without a COO. He said Bloom will handle the company's "go to market" strategy while he oversees the company's product portfolio.

"We'll jointly operate and run the business. I've done that for 37 years of my life," Schwarz said.

High-powered executives like Schwarz and Bloom rarely share jobs successfully or for very long, said Whitehead. "If they do, it will probably be a first. History shows that when you have shared responsibility, somebody eventually resigns or moves on to bigger and better things," he said.

Losing Schwarz would deprive Symantec of the person who drove the company's successful strategy in recent years, said Christiansen. "[Symantec CEO] Thompson is the big thinker, but Schwarz is the doer -- he executes on [Thompson's] strategy, and he's executed very well."

That could put the onus on Bloom to move over or move on -- a decision that wouldn't surprise Whitehead. "Based on what I know about Gary Bloom and his personality, I could see him go to another start-up company," he said.

Copyright © 2004 IDG Communications, Inc.

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