StillSecure, After All These Years

Barracuda to Sourcefire: We see your CEO bet, and raise you to $8.25, call

Barracuda continues their poker game with Sourcefire today raising their $7.50 all cash bid to $8.25.  Are Dean and company just bluffing for publicity or are they willing to keep playing and stay in this game until all the cards are on the table?  I don't know for sure, but find it interesting that Barracuda did say to Sourcefire that they would be willing to explore ways that would show Sourcefire's increased value to Barracuda and based upon that increase their offer.  Of course $8.25 is still to low, but it is getting closer.  If the offer gets near 10 bucks, Sourcefire has some serious decisions to make.  In the meantime, Barracuda will again reap the PR bounty from having a seat at the hottest poker game in security.

What's the deal with the Barracuda offer for Sourcefire?

By now you probably saw that Dean Drako and Barracuda have made an offer of $7.50 a share (in cash) for Sourefire. This values Sourcefire at about 200 million dollars and is a 13% premium over the Friday closing price. Of course this is well below Sourcefire's historical highs, but than again who is worth what they were a few months ago.  I have a chart on the left that shows stock prices.

So what is behind this deal? I think it is all about ClamAV and the Trend Micro suit.  As readers of my blog know, Trend Micro sued Barracuda a few months ago for patent violations around the way Barracuda uses ClamAV in its appliances.  I think Dean was looking to Sourcefire as the owners of ClamAV to step up and help in the defense of the suit.  I believe to date, that has not happened and Dean is upset with it.  In fact Dean actually mentions that suit and Sourcefire's lack of response on it as one of the two reasons why Barracuda's acquisition would make sense. For the other reason Dean takes a swipe at the Sourcefire management team, saying "We believe that the recent FIRE stock price reflects the execution challenges faced by the company’s management to date." 

I am not sure where Dean comes up with the 200 million to complete this deal, but assume he has lined up financing.  However, at this price I don't think this is more than a stunt.  If Barracuda goes beyond $7.50 a share to $10.00 a share or so, it gets real interesting.  Maybe this puts Sourcefire in play and someone else comes forward with another offer, who knows.  But right now I think Dean is just looking to stir the pot.

Update: As I expected, this morning Sourcefire rejected the Barracuda offer according to this article in BusinessWeek. The Sourcefire board said the 187.4 million dollar offer "is not in the best interests of Sourcefire and its stockholders".  Lets see what Barracuda does next.

HP buying EDS- Offensive to IBM or defensive to Indian firms?

Saw the big news today about HP maybe buying EDS in a deal rumored to be in the 12 to 13 billion dollar range. That is a fat 35%+ premium over what it was trading at before rumors of the deal were announced. Most of the commentary I have seen positions this deal as HP making a move to better compete with IBM. While I agree that is certainly an angle to this deal, I think another important angle is keeping HP ahead of the pack of large Indian services firms that have been expanding world-wide over the last few years. In the global marketplace for IT services and consulting, HP and IBM may be the American based entries in a world-wide competition with Infosys, Tata, and other firms from India, China and the rest of the world.. For this reason I think it is a good move by HP to shore up a solid second place behind IBM.

I should mention that at StillSecure we partner with both companies and I have had a chance to work with both of them. EDS is certainly not the powerhouse it was 10 years ago, let alone in the Ross Perot/GM heyday. Like any company that size it is hard to make rapid change with the amount of inertia built into the system. However, they have been in turn around mode for several years and perhaps HP can make this buy with EDS on the way up. One thing for sure is Mark Hurd, HP CEO is remaking this company in his own wishes if not image. So far everything he has touched there has turned out well, so lets see what he can do with EDS's 2.8% average year to year growth. He will have to do better for this deal to be considered a success.

That didn't take long

Over the weekend I wrote an article about what a Yahoo shareholder would do with a copy of Steve Ballmer's letter to Jerry Yang. Well, it didn't take very long for a class action law suit being filed, led by two pension funds. Attorneys for the pension funds said, "The actions taken by Yahoo's CEO this past weekend confirm that the company's board of directors pursued all manner of value-destructive third-party deals to fight off Microsoft's bid". The attorneys further claim that Yang never negotiated with Microsoft in good faith.

Not everyone thinks this way about the deal though. Steven Vaughan-Nichols over at ComputerWorld thinks that business textbooks in 2025 will show that Microsoft's slow collapse will be accelerated by Steve Ballmer blowing the Yahoo deal. I think he is wrong. I think business classes will look at Yang's failure to lock this deal up for such a premium over current price will be studied as not only a blunder but a classic case letting ones pride and ego get in the way of what is best for the shareholders. I think in addition to the lawsuits, look for Wall Street to now start punishing the stock as well. I stick with my prediction, Yahoo has no where to go but down. They will wind up getting acquired for significantly less within 24 to 36 months.

What would you do with Ballmer's letter if you were a Yahoo shareholder

As you probably know Microsoft has officially withdrawn their offer for Yahoo.  I had a look at the letter Steve Ballmer sent to Jerry Yang officially withdrawing the offer and offering his reasons why. Must say that it is rare that a document like this is made public.  I must also say that if I were a Yahoo shareholder, it would be a key piece of evidence when I sued Jerry Yang and the rest of the Yahoo board and management for not accepting Microsoft's generous offer.

What I found particularly disturbing (as did Ballmer and Microsoft evidently) was Yahoo's threat to basically outsource their search advertising to Google if Microsoft pursued proxy fight takeover.  Talk about cutting off your nose to spite your face!  That would be suicidal for Yahoo, but just goes to show you that Yang and gang had a no Microsoft at any cost strategy.

With the passage of time I think this will be looked on as a terrible mistake by Yahoo and at some point in the next 24 to 36 months they are going to be acquired for a lot less money.  They cannot compete with Google alone, they have not executed well for years and this will force Microsoft to do something else to become more competitive in search. 

Microsoft buys Xobni?

Back in February I wrote about how much I liked Xobni for Outlook. Now Fred Wilson reports thats Microsoft has bought Xobni. Fred is linking to this Techcrunch article on it. Though it is still sketchy at this point, I think it would be a great pick up for Microsoft. After using it for a few months, I find it very useful. I think picking it up now, while still in beta is a cheap deal for Microsoft and will save them a ton of money having to buy it later!

Congrats to the team at Xobni for building a product that had obvious appeal.

Is the 3Com, Bain, Huawei deal dead for good?

Saw a couple of reports today including this one in the NY Times that the Bain, 3Com, Huawei deal is dead again.  Of course we have heard this before, only to see the parties try to figure something else out.  But this time it sounds like Bain is done wasting cycles on this deal and going to move on.  3Com's stock took a dive on the news. 

I personally think that if they were going to divest the Tipping Point stuff, what was the big deal with this one. Instead now 3Com has a much narrower potential universe of partners/acquirers to deal with.  It materially decreases the worth of their company and their ability to compete.  Looks like Cisco is the winner here.  I wonder what there position on this was?

Update: Now comes a report that 3Com is demanding a 66 million dollar "break up" fee from Bain for withdrawing from the deal for no good reason.  I don't know but the government not letting the deal go through seems like a good reason to me.  However, deals like this often have a break up fee clause.  Guess we will have to see how this one turns out.

Dave Cowan of Bessemer says mid-market is the new battleground for security

Brad Feld turned me on to this interview of Dave Cowan of Bessemer Ventures on Red Herring TV.  Dave and Brad have co-invested in several deals, Postini being one of them.  Dave speaks about his recent involvement in a 100+ million dollar round in Perimeter Securtity, the MSSP aimed at mid-market and SMBs.  Dave and Bessemer have invested in many security companies over they years and he has a well honed view into the space.  His comments are that security is saturated at the top of the pyramid, meaning the Fortune 2000 and large government accounts.  He thinks the real opportunity is at the mid-market.  Not surprising given his recent Perimeter investment.

From my perspective though, I have to agree.  I think the mid-market is a much more dynamic marketplace for security.  You know what they say about the Fortune 500? There are only 500 of them.  Anyway, here is the interview, but be advised the security talk is only for about the first half of the show.  The rest is on VC stuff.

3Com, Bain, Huawei rises from the dead - Where there is a will, there is a way

I was surprised to read this report by Matt Hamblen in ComputerWorld today that evidently the 3Com, Bain and Huawei deal may be rising from the dead.  3Com adjourned a shareholder meeting today until next Friday to give the parties time to work out a new plan and submit a new plan to those wild and crazy free trade hippies at CFIUS. 

As I have written before CFIUS just does not take kindly foreign companies buying US based security companies, let alone a Chinese company run by a former Peoples Republic Army Officer owning a piece of the action.  However, timing is everything and maybe the parties can take a new angle here.  Spinning out Tipping Point I would imagine has to be a first step in any acceptable plan.  I think the parties can come up with a plan that the government can improve.  To use another cliche, my reason is that necessity is the mother of invention.  At this point and at their current stock price, if 3Com can't figure out a way to get this done, they are in a heap of trouble.  What options do they have? 

Without bringing politics into the equation, I think a healthy 3Com that can compete with Cisco is important.  Taking Tipping Point out of the equation, I don't see what should hold this deal up. I think it will be best for a healthy competitive networking gear marketplace.  The current near monopoly situation in this market is not healthy.  Some of the weak sisters have to be removed and strong competition will result in the industry as a whole improving and the customer will win with better products, cheaper!

I will be watching next Friday to see what happens but I hope they can put something together that works this time!