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Volume 3, Number 32 -- August 31, 2006

IBM Buys Security Expert ISS for $1.3 Billion in Cash

Published: August 31, 2006

by Timothy Prickett Morgan

The IBM software and services spending spree continues, and the company shelled out $1.3 billion in cold, hard cash last week to acquire Internet Security Services. ISS, the fourth big acquisition IBM has done in as many weeks, is based in Atlanta and is one of the big players in security advisories, software, and appliances.

ISS is a publicly traded company, and only two months ago its stock was trading down in the range of $18 a share after a hiccup caused, in part, by problems with its ERP system. IBM's all-cash offer of $28 a share was only a modest premium compared to the stock's trading price before the deal was announced, but it is a pretty big premium compared to that low point in July. ISS was on a short list of companies that were named as potential acquisition targets in the wake of Hewlett-Packard's $4.5 billion acquisition of Mercury Interactive in July. And so it has come to pass.

IBM and ISS have been partners since 1999. IBM is planning to use the ISS portfolio of security products as a means of delivering managed security services, and as such, ISS will not be merged in IBM's Systems and Technology Group or its Software Group, but rather into the infrastructure management services division within its Global Services group. This division is headed up by Val Rahmani, who was one of the people who spearheaded IBM's acquisition of the consulting business of PricewaterhouseCoopers and who is one of the rising stars at Big Blue.

ISS was founded in 1994 and went public on the NASDAQ in 1998. The company has 1,250 employees and booked $329.8 million in sales and $38.6 million in net earnings in 2005; it has over 11,000 customers, who use its X-Force security intelligence service or who use its intrusion detection and prevention appliances. IBM has over 3,500 security experts working in Global Services, who help analyze vulnerabilities and implement security solutions for customers. So the ISS deal bulks up its headcount significantly. IBM says that Tivoli systems management and security products will be integrated with the X-Force service, and that it will continue to sell security appliances itself and through its partner channel.

IBM expects the acquisition to close within two months.


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Editor: Timothy Prickett Morgan
Contributing Editors: Dan Burger, Joe Hertvik,
Shannon O'Donnell, Timothy Prickett Morgan
Publisher and Advertising Director: Jenny Thomas
Advertising Sales Representative: Kim Reed
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