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EMC Joins Takeover Fray with $1.3B Legato Buy

By Keith Regan
Jul 8, 2003 7:35 AM PT

Information storage leader EMC has announced it will buy Legato Systems in an all-stock deal worth US$1.3 billion, signaling that the once-struggling tech giant may be back on its feet.

EMC Joins Takeover Fray with $1.3B Legato Buy

EMC CEO Joseph Tucci said his company has long believed that Mountain View, California-based Legato would make a logical takeover target, but the move was delayed until EMC could recover from a string of quarters in which it posted massive financial losses.

Hopkinton, Massachusetts-based EMC has slashed its worldwide workforce and managed to squeak back into the profit column. The company now says second-quarter results will show a profit of about 4 cents per share on stronger-than-expected revenue.

Soft Sell

The jewel in the acquisition crown is probably Legato's software tools, which enable management of different types and makes of data storage systems. EMC, which originally maintained a laser-like focus on hardware sales, has spent much of the past two years acquiring smaller firms and developing its own products to gain a bigger share of the storage software market.

Tucci said the deal will end up "accelerating the evolution of EMC" into a firm that provides enterprises with storage hardware, software and services, with emerging markets, such as management and storage of e-mail and other forms of messaging, serving as key growth targets.

Once the deal closes, Legato will be operated as EMC's software division. Legato CEO David Wright will remain in place, as will most of the firm's sales, marketing and service corps, though EMC said it will explore all cost-saving opportunities.

Workforce a Plus

EMC spokesperson Michael Gallant told the E-Commerce Times that no decisions about layoffs or other moves have been finalized. He added that Legato was desirable as a takeover target because of its strong and experienced workforce and its geographical location on the opposite coast from EMC.

"They have a track record for great customer service in the storage software industry that's valuable to us," he said.

Interestingly, EMC competitor HP was believed by some analysts to be a likely acquirer of Legato earlier this year.

Join the Party

The move comes against the backdrop of a vicious takeover struggle in the enterprise software industry. Oracle is trying to foist a $6.3 billion hostile takeover bid on PeopleSoft, which in turn has commenced an effort to buy J.D. Edwards for a mix of stock and cash worth about $1.75 billion.

Lesser deals are being forged as well, most amid relative calm. For instance, Palm recently paid $169 million for sector also-ran Handspring. The online search category has seen a slew of deals, too, many involving privately held companies.

Some analysts see the takeover actions as hopeful signs that indicate a stronger phase of the business cycle lies ahead.

"Companies have a tendency to hunker down and not stick their necks out too far if they see nothing but bad times ahead," Morningstar.com analyst David Kathman told the E-Commerce Times. "Some mergers are defensive moves, but if you see a lot of activity, it can be good news."

Details, Details

The deal, which is expected to close in the fourth quarter of this year if all regulatory and shareholder approvals come through, calls for Legato shareholders to receive .9 share of EMC stock for each Legato share.

Early Tuesday, EMC shares were trading down slightly to $11.42, while Legato shares were up 9 percent to $9.90.

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