Saturday, February 05, 2005

Spare the rod, please.

Acquirers get punished when they overpay for a target or when they make bad buys that don't fit into the parent company's strategy. Occasionally though, you will find overreaction and in some cases, just failing to see the full/brighter picture. Here is one example of each :

- Symantec (SYMC): As I noted in an earlier entry, Symantec's plan to buy Veritas doesn't make much sense and it deserved to take a beating. But at this point, it looks overdone. The brighter side of this takeover is that, Symantec did not overpay (the real mystery: why was Veritas so desperate to sell?) and even if the integration efforts fail, Veritas has a customer base that is unlikely to thin.

Having worked on an internal project to replace a Veritas deployment, I can tell you that it is hard to get rid of Veritas in a corporate setup. It is disruptive. So, Veritas will remain a cash cow for Symantec. Worst case, Veritas will be spun off a few years down the road.

So, if you are willing to wait for 3 or more years, Symantec should be on your buy list now.

Another point that is often made about Symantec is the impending competition from Microsoft. I think that is overblown too - who would want an anti-virus filled with security holes ?

- SBC Communications (SBC): SBC's purchase of AT&T was smart - it did not overpay, and it is planning to preserve the AT&T name where possible. In addition, the massive cost cuts that are planned should be reflected in the bottomline soon. So, why is SBC being punished ?

Once again, if you are willing to hold for a few years, SBC is a buy right now. While you wait for it to recover, you also get a 4% dividend. What more can one ask ?


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