TheStreet’s Cramer, Analysts Speculate on Tech-Takeover Targets

Two news articles have surfaced recently, one from Dow Jones Newswires and another from TheStreet.com’s Jim Cramer, regarding technology companies that are candidates for acquisition.

The articles have different themes and are based on different sets of assumptions, so it’s no surprise the listed companies diverge. 

Dow Jones’ piece, which appeared in the Wall Street Journal (subscription required), examines whether and how HP’s acquisition of Mercury Interactive for $4.5 billion might trigger further takeovers in the software sector.

The writer of the piece correctly posits that the software realm currently is amenable to mergers because it is one of the few high-margin sectors remaining in a technology world that is becoming increasingly commoditized. The author also notes that some of these companies are facing slowing growth in maturing markets, while still others have been weakened by sector- or company-specific problems, such as the recent pandemic of firms whose valuation have been driven down by stock-option backdating irregularities.

Among the companies cited in the article as acquisition candidates are Quest Software, Comverse Technology, Borland Software, BEA Systems Akamai Technologies, McAfee, and Internet Security Systems.

While it appears ISS is a near-term acquisition target, most probably of IBM, some of the others on this list either aren’t for sale or are unlikely to attract buyers at current valuations.

In that regard, McAfee leaps readily to mind. While Microsoft was said to have pondered an acquisition of McAfee two years ago, that was then and this is now.

Who would buy McAfee now? I don’t think IBM wants to get into the antivirus game, definitely not at the price an acquisition of McAfee would entail. Yes, McAfee has other products, but not many of those, with the exception of its IntruShield network-based IPS products, are considered market leaders. I just don’t see McAfee being acquired, at least in the near term, though it will be an active acquirer, in areas such as instant-messaging security and data-leakage prevention (DLP), in the months ahead.

Cisco was rumored to be considering an acquisition of an antivirus company, though it was leaning more toward close partner Trend Micro than toward McAfee, but computer-networking giant is said to have carefully reconsidered that option in light of the increasing obsolescence and decreasing effectiveness of antivirus software as a defensive shield against malware. Also, Cisco was reputed to be dissuaded from making such a move by its reliance on anti-malware vendors as partners in its Network Admission Control (NAC) architecture.

In light of the HP acquisition of Mercury Interactive, Quest Software definitely ranks as a probably takeover candidate, as does Borland, to a lesser extent. Both Sun Microsystems and IBM might take close looks at Quest, and BEA also is a potential target for either company. Oracle also might give BEA more than a passing glance.

Cramer’s list of takeover candidates, as noted above, includes an entirely different roster of names from those mentioned in the Dow Jones article. That’s because Cramer and his staff at TheStreet.com compiled it by looking for companies that are profitable, but whose market capitalizations have been beaten down lately.

Names on his list include Broadcom, Western Digital, Palm, ActiveIdentity, WindRiver Systems, BEA Systems (well, that’s one company on both lists), Tibco, WebSense, FileNet, and Avid Technology.

I don’t see an obvious Daddy Warbucks taking any of these companies home, with the exception of BEA. Sometimes, Cramer, stock prices are down for good reasons, and even acquirers don’t want to try catching falling knives.

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