EMC Plans to Acquire Documentum
EMC Corp. said Tuesday that it would buy Documentum Inc. for about $1.44 billion to counter cutthroat pricing in its data storage machines business by selling more profitable storage software.
Shares of Documentum, which makes software that helps corporations manage information, soared.
The all-stock offer is EMC’s second billion-dollar-plus software acquisition deal in the last three months and was initially valued at $1.7 billion -- a premium of 28% over Documentum’s closing price Friday. The deal’s value fell to $1.44 billion because of a drop of $1.11 in EMC shares Tuesday.
The Documentum purchase is part of a two-year effort by EMC to expand its offering of software that manages data stored on the hardware systems it sells. It aims to increase software to 30% of total revenue by the end of next year.
EMC purchased software company Legato Systems in July in a deal valued at $1.2 billion.
EMC, which also said third-quarter earnings would be generally in line with or slightly ahead of Wall Street expectations, will offer 2.175 shares of EMC common stock for each share of Documentum common stock.
But some analysts wondered whether EMC’s offer was too high for Documentum, a relatively small company that expects to report third-quarter revenue of $73.5 million and earnings of 2 cents a share.
“In terms of strategy, it’s in the right direction, but investors are going to question, ‘Are they paying the right price?’ ” Susquehanna Financial Group analyst Kaushik Roy said.
EMC defended the deal, saying that Documentum, based in Pleasanton, Calif., was the best choice among the data content management software companies it considered buying.
“This was a hot company. Anytime anybody has bought a leader in the hot space you pay a little bit bigger premium,” Chief Executive Joseph Tucci said. “I think we did our homework.”
EMC expects to take a pretax charge of $30 million to $50 million for the value of Documentum’s in-process research and development costs and other integration expenses in the first quarter.
EMC plans to run the company as a software division led by its current chief executive, Dave DeWalt.
Including the charges, the deal will reduce first-quarter 2004 earnings by 2 cents a share and will begin slightly adding to earnings starting in 2005.
EMC shares fell $1.11 to $13.34 on the New York Stock Exchange. Documentum gained $4.12, to $28.54, on Nasdaq.
