SAN FRANCISCO — Wall Street investors are skeptical of the proposed merger between Veritas and Symantec because they don’t have an in-depth understanding of the technology, said Veritas Software’s CEO during the company’s
annual user conference.
In an interview with Computing Canada, Gary Bloom said it’s difficult to explain why the investment community has not come out in support of the union of the storage and security companies.
“From the perspective of our two companies, the partners we work with and the customers we deal with, this is a straightforward deal that everyone seems to understand except Wall Street,” said Bloom. “Most acquisitions have been a big company buying a small company or a successful company buying a broken one.
They’re not used to seeing this. In this case, it is about two leaders building on their future capabilities. If the person looking at this deal is a Wall Street financial analyst that doesn’t understand our respective technologies, it’s very difficult for them to properly evaluate the merits of this merger,” he said.
At least one analyst said just because Wall Street doesn’t like it doesn’t mean the merger won’t happen. The power to nix it lies in the hands of the companies’ boards, said Carolyn DiCenzo, research vice-president of the storage and enterprise management group at Gartner.
If they’ve convinced their boards, and I don’t anticipate any problem there, then they do have to go and execute if they want to get a good return for their investors,” said DiCenzo, adding that investors will “warm to it over time.”
She said, without a merger both Symantec and Veritas run the risk of not being able to effectively compete with IBM, Computer Associates and Microsoft, all of which have storage and security offerings in their arsenals.
“IBM has security and storage. CA has security and storage. So this is Veritas and Symantec coming together so they’re not at a disadvantage against those two key players,” DiCenzo said. “They would increasingly come under risk if they didn’t (merge). Microsoft has also moved into the security space – very small, but they’ve signaled they’re going in and they’ve also released into beta their data protection manager, so they’re in the space.
Making his case for the merger, Bloom said Veritas, which had revenues of US$2.04 billion in 2004, has invested more in research and development than it competitors. While the industry standard is about 10 per cent, last year the storage firm invested approximately 16 per cent — US$347 million — into R&D.
“We have the track record of innovation,” he said. “We’ve been at it for 15 years. We’ve been very successful.” If the merger closes at the end of June, the combined company will be the fourth largest software vendor with revenues in excess of US$5 billion per year.
In an effort to reassure the 3,400 delegates, Bloom said a combined company would help solve two key challenges facing today’s IT organizations: the cost and complexity of their infrastructures. A recent CIO Insight survey reveals that more than 40 per cent of CIOs said they need to cut costs, while more than 80 per cent need to reduce the complexity of their environments.
Bloom said the bulk of IT costs are associated with the labour of running it and if organizations can reduce the number of vendors in their roster, they can cut costs.
“CIOs tell us they want to do business with a smaller number of vendors who have broader product lines,” he said. “They want (fewer) contracts, less administration and one less vendor to manage. We’ll give you the ease of vendor management, but you won’t have to sacrifice technology.”
Another area customers would like to see simplified is software licensing.
General manager of Veritas Canada Fred Dimson said the company is taking steps in this regard and expects to offer some relief to customers starting this summer.
“We’re building an intelligent back end that will give companies the ability to track our software,” he said. “The first piece of that will come this summer and will evolve over a year and a half. Dimson said the company is also simplifying its pricing structure, staring with a pay-as-you-go model.
Meanwhile, Bloom said that while no single vendor can solve all the issues today’s IT organizations grapple with, a Symantec/Veritas entity would develop products that drive complexity out of the IT environments. He said in the first phase of the merger, the goal is to ensure interoperability between products from Veritas and Symantec. Ultimately, he said, they will ensure there’s a tight integration between the storage and security products.
“What we’ve done is tie our building blocks together so you get more automation and drive out complexity,” he said. “We are enabling better integration among our products.”
Another challenge facing today’s organizations, Bloom said, is compliance with government regulations. With legislation such as Sarbanes-Oxley in the U.S. and Bill 198, which proposes sweeping changes to securities laws in Ontario, companies face the daunting challenge of how to manage their massive e-mail data stores so that, in the event of a legal proceeding, it could be retrieved and presented in a timely manner.
“E-mail is complex, costly to run, has huge compliance issues and it’s vulnerable,” said Bloom. “It’s not good enough just to have data backed up. You have to be able to archive it, and the consequences if you don’t are extreme.”
Canadian companies may have more of a window to get their compliance strategies in order, but Dimson said he’s been educating customers on the ramifications of not having a well-oiled backup and archiving machine.
The thing that’s different in Canada is today, the fines are not that heavy,” Dimson said. “When you see the fines in the U.S. and people going to jail, it’s a different ballgame. As soon as we make our laws stricter and more accountable, there’s going to be a big push.”
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