I see three possible reasons for Check Point’s sharp fall on Friday. The most logical of the three is the fear of a warning. Another reason could perhaps be the disappointment at the news that security company RSA Security Inc. (Nasdaq: RSAS) was snapped up by storage systems solutions giant EMC Corporation (NYSE: EMC), which may also be setting its sights on Check Point’s market. A third (somewhat weak) reason is the fact that Check Point was thrown out of the portfolio on the final day of the first half of 2006 by managers of large portfolios and funds who did not want it to appear in the semiannual reports that they will soon be circulating to investors. This possibility is remote, since Symantec Corp. (Nasdaq: SYMC) is another security company that has been a great disappointment this year and I didn’t see anyone dump it in a similar manner.
RSA operates in the hot field of user identification and access authorization through, among other things, special “keys” used on VPN networks. Two other companies are also in this field: Aladdin Knowledge Systems (Nasdaq: ALDN), which responded by rising 5%, and VASCO Data Security International Inc. (Nasdaq: VDSI), which rose 6% on Friday. Over the last five years, the online era, especially in financial services, has brought prosperity to this field. In acquiring RSA, EMC is making a strategic entry into a new field in which it will sees annual potential sales of $1 billion within a few years.
It is known that leading anti virus software developer Symantec was the other suitor for RSA. Symantec did its investors a service by not outbidding EMC, which paid $2.1 billion in cash for RSA, since if had it done so it would have sunk to an even deeper multiyear low, after its crash following the mega merger with Veritas. EMC also recorded a multiyear low on Friday and, as in the case of Symantec, its investors are praying for a timeout from acquisitions and hope to see faster growth following the integration of the many companies acquired.
Check Point’s investors, on the other hand, are thirsty for acquisitions that will bring renewed growth, and many people are no doubt asking now why Check Point can’t follow in EMC’s footsteps -- to enter a new market in the security sector with potential sales of $1 billion a year. On the other hand, it is clear that a deal worth $2.1 billion in cash and stock for a company like Check Point, whose market cap is only double that amount, could give a hefty shock to its share price, much more than the one Marvell Technology Group (Nasdaq: MRVL) took in the Intel deal. EMC’s market cap is ten times the price of the RSA deal.
Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.