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Cisco to buy security software maker for $830m

By Reuters
New York, 05 Jan 2007

Top US network equipment maker Cisco Systems said on Thursday it will buy Web messaging and e-mail security firm IronPort Systems for $830 million to tap growing demand for anti-virus and anti-spam software.

The acquisition of the privately-held maker of e-mail and Web security software is Cisco's latest move to grow by integrating niche technologies that complement its main product line of routers and switches which direct Internet traffic.

Cisco said the acquisition, the fifth-largest in its history, would enable the company to offer corporate clients a more comprehensive range of products.

IronPort is known for "reputation filters" that block spam by examining a sender's record. Blocking spam can help a company save bandwidth, as well as save employees the trouble of combing through unwanted e-mail messages.

"IronPort has a reputation on filtering where they know the reputations of people who are sending e-mails or generating Internet traffic," Richard Palmer, senior vice president of Cisco's security technology group, told Reuters.

Competitive pressure

"We can use that information at Cisco for the routers and switches and firewalls to filter traffic," he said.

Prudential Equity Group analyst Inder Singh said the deal would bolster Cisco's product portfolio, adding that it would raise "the competitive pressure against other messaging security vendors" including security software maker Symantec.

Cisco said it would pay for IronPort with a combination of cash and stock, and that the deal is expected to close in the fiscal third quarter, which ends in late April.

While IronPort would become a Cisco unit, Palmer said it would be somewhat independent, with CEO Scott Weiss remaining at the helm and headquarters staying in San Bruno, California. Most of IronPort's 408 employees will stay, he added.

Weiss, who will report to Palmer, said IronPort had been eyeing an initial public offering but decided a deal with Cisco would give the company access to a wider range of companies. It was advised by Evercore Partners.

IronPort's current client focus is on large technology, media and financial services firms. "There's a huge business market that we're not tapping," Weiss said.

Weiss said that the Web messaging security market is growing at around 25% each year. IronPort said in November that worldwide spam volumes had nearly doubled year-on-year.

Makes sense

Gartner analyst Peter Firstbrook said the move made sense for Cisco as corporate customers would likely appreciate higher-quality spam and virus filters.

"It's not going to make a significant impact in terms of financials, but it is one more product in their quiver," he said.

Cisco shares rose 1% to $28.01. They have risen around 55% from a year ago, helped by stronger sales on the back of increasing Internet traffic.

The company is also seen benefiting from strong growth in cable set-top box maker Scientific Atlanta, an acquisition it closed last February as part of a strategy to expand into video and consumer markets.

Firstbrook said the latest deal was particularly positive for IronPort amid consolidation in the security software industry.

Secure Computing said in July that it would buy messaging security firm CipherTrust, which is seen as IronPort's key competitor. The world's largest software maker, Microsoft, bought e-mail security firm FrontBridge in 2005, about a year after Symantec bought Brightmail.

Secure Computing shares fell 1.5%, to $6.55, and Symantec rose nearly 2%, to $21.75.

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