EMC/RSA union draws mixed reviews

EMC/RSA union draws mixed reviews

EMC's planned acquisition of RSA Security for US$2.1 billion is garnering mixed reviews from analysts on Wall Street and within the technology industry.

During a conference call Thursday, analysts from Bank of America, Morgan Keegan, Deutsche Bank and other investment firms were asking hard questions of the top executives at EMC and RSA about why they want to combine the companies under the deal that's expected to close by early next year.

EMC Chairman, President and CEO Joe Tucci defended the deal, saying the move represents an opportunity for EMC to integrate RSA's encryption, authentication and authorization products into EMC's line.

"You need that technology, and we think that the best encryption technology in the industry is RSA," said Tucci, adding RSA has "the best key management on the planet."

Tucci indicated there had been a competitive bidding situation that resulted in EMC's bid becoming accepted by RSA, although neither firm is discussing the alternate bids or where they came from. EMC has made some big-ticket purchases in the past, paying US$1.7 billion for Documentum and US$1.3 billion for Legato.

Questions from Wall Street about the fact that the Securities and Exchange Commission and state regulators in recent weeks have opened an investigation into how RSA has devised stock options left Tucci unruffled. He said EMC had been in discussions with RSA on this regulatory probe and that he saw no particular cause for concern. "We're comfortable with RSA's response," he said.

Art Coviello, RSA Security's chairman, president and CEO, called the regulatory probe "a management distraction for us."

Under the acquisition plan, Coviello is expected to become senior vice president and head of EMC's newly created Information Security Division.

The Wall Street skepticism about the deal affected EMC's stock price, which dropped 4 percent in after-hours trading Thursday and was down another 6 percent Friday afternoon.

Information technology analysts had a mixed reaction to the deal.

"The downside is EMC had to pay so much money," said Brian Babineau, senior analyst at Enterprise Strategy Group. "The upside is they paid cash, so they didn't dilute their shareholders' value by that much."

Some analysts said the match between EMC and RSA is a good one. "It's a logical fit for EMC," said Gordon Haff, senior analyst with Illuminata. "The issue is letting the right people access the right data security with authentication, roles and policies."

RSA's line of single-sign-on, authorization and token-based access provide the foundation technologies for EMC to integrate into its storage line, Tucci told the Wall Street group. However, some analysts pointed out this could take considerable time.

"Like its VMware acquisition, it will take EMC a long time to integrate the technologies and services into their products," said Stephanie Balaouras, senior analyst at Forrester.

John Worrall, senior manager of worldwide marketing at RSA, said the exact plans for integrating RSA's products into EMC's products for security purposes will be hammered out over the coming weeks and months.

RSA has remained an independent security firm for two decades, providing core encryption and access technologies to both enterprise customers and software vendors. Charles Kolodgy, security analyst at IDC, said he questioned how easily the security firm, as a division in EMC, could maintain its partner relationships, especially with any vendor competing with EMC.

"Our commitment will not change," responded Worrall. Though it expects to operate as an EMC division, the long-term vision at EMC is to grow security into a billion-dollar business.

Forrester analyst Jonathan Penn said the synergies between EMC and RSA are clear, especially as regards EMC's interest in integrating encryption into its storage products.

Penn added the fact that EMC and RSA are headquartered fairly close to each other "helps a lot" in fostering a smooth transition.

Rob Sadowski, EMC's senior manager of product marketing for information security, said Friday afternoon that the company foresees integrating RSA's identity management and authorization products, plus its BSAFE encryption toolkit, into a wide range of EMC products. These would include EMC's content-management systems, the Documentum products, and other repositories for data.

"The best and most interesting short-term traction is in their encryption library to give our products today - the back-up software, content management and storage management - the encryption capability," Sadowski said. "Customers have been asking for this."

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