Recently, The Wall Street Journal (WSJ) reported that Symantec Corporation SYMC is looking for potential buyers for its Veritas business. According to WSJ, the computer security solution provider’s data storage and recovery business could fetch approximately $8 billion.
Later, Reuters reported that Symantec has contacted NetApp Inc. NTAP, EMC Corporation EMC and several private equity firms to sell the Veritas business. However, taxes associated with the split might be an obstacle, according to familiar sources.
Veritas specializes in providing a wide range of data backup and recovery, and storage management products which are used by approximately 75% of the Fortune 500 companies. In 2005, Symantec acquired Veritas for approximately $13.5 billion in an all-stock deal.
However, the merger did not live up to Symantec’s expectations as its security business was hurt by slowing PC sales, while the Veritas business was impacted by sluggish demand for storage and data management products. This is evident from the current valuation of the Veritas business which has dropped to $8 billion from the acquisition price of $13.5 billion.
Therefore, last year in October, Symantec announced its decision to split its data-storage and cybersecurity businesses into two publicly traded companies. In January, it further announced that Symantec will operate as two separate entities — the security business and the information management (“IM”) business — following the split.
The separation is likely to streamline Symantec’s operations and maximize shareholder’s value. This strategic move will also likely revive its operational performance.
Moreover, strength in the individual businesses make them more attractive as acquisition targets for companies like Hewlett-Packard Company HPQ, Cisco Systems and NetApp.
Even if this doesn’t happen, the split enables a customized approach to two different kinds of businesses, which might not have been possible as a single entity.
The company has also realigned its organizational framework by eliminating several mid-level management positions to create a leaner operating structure. It also outlined a go-to-market strategy, involving the reorganization of its sales force into specialized groups to look after functional areas of security and information management.
Through the introduction of enhanced versions of storage management and Internet security solutions, Symantec plans to attract small and mid-sized businesses. These solutions are primarily targeted at information-driven businesses.
Though it might be difficult to sell Veritas, we think Symantec’s focus on restructuring its business will favor long-term growth.
Currently, Symantec has a Zacks Rank #4 (Sell).
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