EMC to acquire Legato for $1.3 billion
BOSTON (AP) – Data storage equipment maker EMC Corp. has agreed to acquire Legato Systems Inc. for stock valued at about $1.3 billion in the latest example of the consolidation drive in the technology industry. The deal announced Tuesday would give Hopkinton-based EMC a sales staff experienced in selling software, a market that EMC has said it will pursue to lessen its reliance on the less profitable hardware business.
EMC chief executive Joe Tucci said Legato’s products and services would complement its own, and help EMC reach its goal of offering customers products for all stages of the data storage “life cycle” – inception, archiving and retrieval.
“What we’re really doing here is a make-versus-buy decision,” Tucci told investors on a conference call. The deal would be the latest consolidation in the technology sector, and software has become a particular hotbed for mergers and acquisitions. Business software maker PeopleSoft has proposed buying another software maker, J.D. Edwards, but PeopleSoft is itself the target of a hostile bid by Oracle.
EMC also announced that preliminary second-quarter results will meet or beat Wall Street’s expectations of a profit of 3 cents a share, compared to a drop of a penny a share in the same quarter last year.
Second-quarter sales will be at the “high end” of EMC’s revenue forecast of $1.425 billion to $1.475 billion, the company said.
Under terms of the agreement, Legato stockholders will receive 0.9 of a share of EMC stock for each share of Legato stock. Based upon the EMC closing stock price of $11.74 on Monday, the transaction is valued at about $1.3 billion.
Legato chief executive David B. Wright said joining forces with EMC would solve Mountain View, Calif.-based Legato’s biggest problems: lack of depth and resources to be a top-tier competitor in the highly competitive industry.
“We suffer for one thing – a lack of resources for getting to all the opportunities,” he said.
The deal is subject to approval by Legato’s shareholders and regulators, but is expected to be completed before the end of the year.
EMC started in 1979 as a reseller of memory chips, and now is a world leader in high-end data storage. In February, EMC vowed to use some of its cash to expand its software business to 30 percent of its revenue by 2005. The company has acquired three software companies since 2001 as well as the storage software business of BMC Software Inc. last week. Wright is expected to stay on as president of the Legato business unit, EMC said. Legato, which employs 1,500 people, was expected to see sales grow to $316 million this year from $262 million last year. EMC intends to operate Legato as a software division of EMC from Legato’s current base in California.