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Written by: Staff

BOSTON, Aug 23 (Reuters) IBM said on Wednesday it agreed to buy Internet Security Systems Inc. for $1.3 billion to beef up its product line in the rapidly growing business of Internet security.

International Business Machines Corp., the world's largest information-technology company, said it will pay $28 a share for Internet Security, continuing an acquisition drive to fuel growth in its software and services businesses.

The price represents a 7.7 percent premium to Internet Security's Tuesday closing price of $26 on Nasdaq. The stock rose 6 percent to $27.60 in late-morning trade.

Internet Security shares had climbed almost 50 percent in six weeks amid speculation that the company would be acquired by IBM, said Friedman, Billings, Ramsey&Co. analyst Daniel Ives.

Internet Security, from remote data centers that it operates around the clock, helps businesses protect against Internet attacks.

It is the only major player in that area, Ives said.

''Once IBM takes hold of it, it changes the whole ballgame.

They have a whole bigger distribution channel,'' Ives said. ''It is probably one of the most logical acquisitions I've seen in security software.'' Internet Security also sells software that companies can add to their computer networks to protect against Internet-based security threats.

Its primary rivals include Cisco Systems Inc., Juniper Networks Inc., McAfee Inc. and Symantec Corp.

IBM said it plans to sell Internet Security's products as services through its global services unit and as software through its Tivoli software division.

''This is something we couldn't do before because we didn't have the software assets to provide protection against Internet attacks,'' Kristof Kloeckner, vice president of strategy and technology for IBM's software group, said in an interview.

FOURTH ACQUISITION THIS MONTH The deal marks the fourth software-related acquisition announced by IBM this month. The combined value of the four deals tops the $2 billion that IBM spent on acquisitions in all of last year.

Kloeckner said IBM will continue to make acquisitions to add products that complement its line of software and services.

But he declined to discuss specific areas of interest or say whether the pace of purchases will continue to accelerate.

''We have enough freedom to do whatever is required to strengthen our business. We do not feel constrained,'' he said.

On Aug. 10, IBM said it would buy FileNet Corp. for $1.6 billion, its biggest acquisition in three years and the fourth-largest to date. Earlier in the month the Armonk, New York, company announced plans to buy MRO Software Inc. for $740 million and privately held Webify Solutions for an undisclosed sum.

IBM said it expects the acquisition of Atlanta-based Internet Security to close in the fourth quarter, subject to shareholder and regulatory approvals.

IBM shares were off 45 cents at $78.50 in late-morning trade on the New York Stock Exchange.


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