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By Don Miller

Hewlett-Packard Co. (HPQ), on Monday, took another step toward becoming a more diverse software-based company by agreeing to buy ArcSight Inc. (ARST) for about $1.5 billion in cash. Palo Alto, California-based H-P will pay ArcSight investors $43.50 a share, a 24% premium over the stock's closing price on Sept. 10. ArcSight makes security software to help companies identify suspicious activity on their corporate networks.

The deal is the latest in a string of acquisitions designed by H-P to lower its reliance on lower-margin computers and servers. "H-P wants to expand from their traditional hardware offerings -- printers and computers and servers -- and they've gone into more services and software," Dave Novosel, an analyst at corporate-bond research firm Gimme Credit in Chicago, told Bloomberg News. "This is something that's a little bit different for H-P. This is not where they've had a strength in the past."

H-P in April kicked off the spending spree by buying 3COM for $2.7 billion and smartphone-maker Palm Inc. for $1.2 billion. H-P also acquired Fortify Software Inc., another security firm, and Stratavia Inc., a database and application automation company based in Denver. Terms for those purchases weren't disclosed.

ArcSight is H-P's second purchase since it lost Chief Executive Mark Hurd last month. The first was its acquisition of storage-technology company 3PAR Inc. (PAR), which it won after a bidding war with rival Dell Inc. (DELL). H-P agreed to pay $2.35 billion, or $33 a share, for 3PAR – almost double the $18 a share that Dell had initially agreed to pay.

Hurd resigned in August amid accusations that he failed to disclose a personal relationship with a contractor and filed inaccurate expense reports. He then added insult to injury by signing up as co-president with H-P rival Oracle Corp. (ORCL). H-P now is suing Hurd on the grounds that the former CEO is breaking the confidentiality agreement he signed as part of his exit package.

It was Hurd who began moving H-P out of its core personal computer and server system businesses into software, networking, storage and services to take advantage of the higher margins typical of those sectors. H-P executives have said the company will continue the expansion strategy, and they are following through with the acquisition of ArcSight.

Cupertino, CA.-based ArcSight makes software that monitors corporate networks for unusual activity, including hackers attempting to break into a system. Its products are used by more than 1,000 customers to help prevent cyber attacks and to spot potential policy violations.

"From a security perspective, the perimeter of today's enterprise is porous, putting enormous pressure on clients' risk and compliance systems," Bill Veghte, H-P's executive vice president of software and solutions, said in a statement. "The combination of H-P and ArcSight will provide clients with the ability to fortify their applications, proactively monitor events and respond to threats."

Shares of ArcSight were trading at around $28 on Aug. 26, when The Wall Street Journal first reported that the company was quietly shopping itself to a handful of big technology companies. A number of big technology firms showed interest, and the bidding quickly surpassed $40 a share, people familiar with the matter told The Journal.

ArcSight, which went public in 2008, reported revenue of $181.4 million in the fiscal year ended April 30, up 33% from a year earlier. Profits for the fiscal year grew to $28.4 million from $9.9 million a year before. Large information-technology providers have been on the hunt lately as they look to offer a wider variety of products. Companies with software that helps businesses securely manage data have been especially in demand. Chip maker Intel Corp. (INTC) last month agreed to buy security specialist McAfee Inc. (MFE) for $7.7 billion.

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Source: HP Continues Its Business Makeover With ArcSight Acquisition