On Monday, Veritas Software said it will issue stock worth about $1.6 billion to acquire Seagate Technology's software unit.
The deal, which is expected to close by next January, will create the biggest maker of storage management software. Veritas (VRTS) is issuing 32.9 million shares for Seagate Software, a division of Seagate Technology (SEG).
And that's on top of the nearly 50 million shares Veritas currently has outstanding. That proved a bit too much for investors to swallow on Tuesday.
"Even in good times, technology investors are wary of large mergers, and in the current nervousness, bordering on panic, ... it is hard to imagine any upside to Veritas stock over the next, at least, six months," BT Alex. Brown analyst Chris Mortenson wrote in a report. On the whopper deal, he trimmed his rating on Veritas to "market perform" from "buy."
Veritas said in a conference call Monday that the deal will boost its earnings "a couple percent" in 1999. The post-merger company is targeting sales growth of "50 percent plus" in the coming years.
The combined company's operating margin is expected to be 25 to 27 percent. That compares with 24 percent for the combined company in the most recent quarter.
During the conference call, the companies said their combined revenue growth rate over the past three years would have been 53 percent.
Veritas makes backup software primarily for big businesses, while Seagate Software serves mostly the "workgroup" market. The pairing is one of the largest in the software industry.
Written By Brenon Daly