JERUSALEM (Reuters) - Check Point Software Technologies Ltd., one of the world’s largest Internet security companies, made a recommended bid for data security company Protect Data AB on Monday to help it expand into the rapidly growing mobile data sector.
Israel-based Check Point said it would pay about $586 million (309 million pounds) in cash for Protect Data, the owner of Pointsec Mobile Technologies -- a provider of data security on laptop and desktop PCs, PDAs and smartphones.
Company officials said the deal was the first step in its strategy to secure all enterprise data -- moving from mostly firewalls, VPNs and business servers to other areas such as Palm Pilots, PDAs, mobile phones and laptops. Pointsec provides automatic data encryption solutions that provide protection at the endpoint.
“It’s a big first stage and it means that in the future, we will do more,” Gil Shwed, Check Point’s chief executive officer, said in a conference call with reporters.
The expansion of network access to mobile workers is driving demand to secure all devices that connect to the corporate network, said Check Point, which is a market leader in firewalls and other products that protect networks.
Check Point’s move comes amid an accelerating consolidation in the security technology sector that has included IBM buying Internet Security Systems for $1.3 billion (685 million pounds) and EMC Corp. acquiring RSA Security for $2.1 billion (1.1 billion pounds) in recent months.
“Customers are looking to do business with a smaller amount of vendors,” said Robert Abbe, managing director at Jefferies Broadview, which advised Protect Data in its deal.
He noted that security technology is one of the most dynamic merger and acquisition markets in the high-tech sector, with expectations that Check Point and others -- including Microsoft, Juniper Networks and Cisco Systems -- will continue to be active in pursuing companies to buy.
“The race is on among the largest vendors in the security-scape to deliver an end-to-end security portfolio in infrastructure security, data security and networking security,” Abbe said. “Once one company makes a move, it puts pressure on competitors to react.”
The deal values Stockholm-based Protect Data at 180 Swedish crowns per share, or 4.2 billion crowns. Protect Data’s shares, which closed at 175.50 crowns on Friday, were 6.3 percent higher at 186.50 in late trading.
Protect Data’s shares have risen some 17 percent after posting a sharp rise in third-quarter operating earnings on October 26.
“The transaction is occurring at all-time highs -- this should be very compelling for shareholders,” Abbe said.
In the first nine months of 2006, Protect Data’s revenues grew by 92 percent to 370.8 million crowns (27.5 million pounds). After-tax income grew by 166 percent to 58.7 million crowns (4.4 million pounds). Check Point recorded revenues of $415 million (218.8 million pounds) and net profit of $198 million (104.4 million pounds) over the first nine months of 2006.
Shwed said he expected Protect Data to contribute at least $90 million (47.5 million pounds) of revenues to Check Point in 2007 but it could be a bit less due to accounting-related charges and other issues. He saw the acquisition as not influencing profit next year but Protect Data would boost profit starting in 2008.
Analysts said the price Check Point has proposed was a bit steep but overall the acquisition was positive for the company, which has been hit by slow industry growth.
“For the last year and a half, we have not seen any growth drivers for Check Point,” said Gary Raskin, an analyst at Psagot Ofek brokerage, noting that the market had been waiting for Check Point to use some of its $1.7 billion (896 million pounds) in cash reserves.
“The price looks aggressive but if Protect Data’s growth continues then they paid a good price,” said Raskin, who rates Check Point as “market perform” with a $21 price target. Check Point’s Nasdaq-listed shares were down 1.2 percent at $22 in late morning trade.
Protect Data’s board of directors unanimously recommends the offer, and it is also supported by Protect Data’s largest shareholder, Monterro Holding Ltd, which owns 10.46 percent.
Check Point’s offer is subject to a minimum acceptance of more than 90 percent of all of the shares of Protect Data. The acceptance period is expected to run from November 27 to December 22.
Shwed said he hoped the deal would close in early 2007.
Additional reporting by Tova Cohen in Tel Aviv, Sven Nordenstam in Stockholm and Megan Davies in New York
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