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By Don Miller

Hewlett-Packard Co. (NYSE: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. (NYSE:PAR), which it won after a bidding war with rival Dell Inc. (NASDAQ: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. (NYSE: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. (NASDAQ: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