Network Associates Inc is swallowing UK anti-virus software company, Dr Solomon’s Group Plc, in a $642m agreed deal as a stepping stone to CEO Bill Larson’s grand ambition. He is gunning for the systems management market dominated by Computer Associates Inc and IBM Corp’s Tivoli Systems Inc subsidiary. Larson reckons he has one big advantage over his two larger rivals in that his company’s roots are in the desktop market, while CA and Tivoli’s backgrounds in mainframes and Unix have led them to concentrate on the server side. Shareholders of both companies are unlikely to rebel at the deal. The terms are 0.27625 shares of Network Associates for each Dr Solomon’s ordinary share, a premium of 8.4% on the UK company’s Nasdaq’s price the day before. One of Dr Solomon’s American Depositary Receipt (ADR) shares is equivalent to three ordinary shares, so it values each of its ADRs at $34.81. Network Associates closed up $1.875, or 4.5% at $43.875 on Nasdaq. Dr Solomon’s eponymous anti-virus toolkit will initially be sold alongside NAI’s retail VirusScan and in the corporate market along with NAI’s Total Virus Defense, and anyone who buys one will get both. By the first quarter of next year, the best parts from both products will be merged into a common source code base. Larson said the Dr Solomon’s name will probably be maintained in the European market as it has greater brand recognition than Network Associates, but no final branding decisions have been made yet. Equally important it boosts Network Associates’ presence on the desktop – the company boasts a world-wide user-base of 50 million, a third of all PC installations. Larson’s strategy is to leverage this formidable presence to sell a whole range of products, at competitive prices for a suite that he hopes producers of individual items will find hard to match. His model is the Microsoft Office suite and Dr Solomon’s gives the company further opportunity upsell to the customer base, offering products beyond anti-virus software alone. Though the deal will give the two companies a mighty slice of the market, Larson sees no regulatory problems as they still face big competitors. Dr Solomon’s clearly tested the market before agreeing to the deal. Asked about rumors that he had talks with Symantec Corp, the utilities software company and Computer Associates International Inc Cheyenne Software subsidiary, Dr Solomon’s chief executive Geoff Leary said: I wouldn’t dream of commenting on any such discussions which may or not have gone on. Clearly Larson will have more acquisitions on his mind pretty soon. Dr Solomon’s will only be mildly dilutive in the third quarter, neutral in the fourth and is expected to make a contribution in the next financial year. While Network Associates’ can now offer a broad range of network management and security tools, it will need more products to compete alongside the Computer Associates and Tivoli.
