Hit #112

Internet Security Systems (ISSX) is being bought by IBM for $1.3 billion in cash. The offer, of $28/share is a premium of 88% over my average cost per share of $14.9/share.

The premium over the recent close was surprisingly small. This is overall a good acquisition for IBM as the one thing it was lacking in its management/monitoring story was network security.

This acquisition will put pressure on HP to react. Will HP go after Symantec ? I should reword that - can HP afford not to ?

McAfee (MFE) may end up as the loser in the coming free for all, though a merger with Trend Micro (TMIC) does make sense to bulk up against Symantec.

With EMC's recent purchase of RSA Systems the two top companies have been taken out. Verisign, the big security player, and that does much much more than monitoring, will remain a standalone player.

Smaller companies like WebSense (WBSN), Blue Coat Systems (BCSI), Secure Computing (SCUR), Aladdin (ALDN), SonicWall (SNWL) and Safenet (SFNT) will all be part of a consolidation wave in this sector. Many of these are going for bargain prices right now.

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Previous hit - FileNet (#111)

Hit #111

IBM is continuing its buying spree, this time snapping up FileNet (FILE) by coughing up $1.6 billion! The all-cash deal values FileNet at around $35/share, a tiny premium over the most recent close, but a gain of around 93% over my average cost of around $18.18/share.

The small premium over the previous close was a surprise since FileNet should have found other buyers in the absence of IBM. Companies from Oracle to BEA would like to enter the document management space. EMC did so long time ago with its buy of Documentum (an early hit for me).

This buyout makes the last big player, OpenText (OTEX), a definite target, though for the moment OpenText itself is busy closing up its recent acquisition of HummingBird (HUMC) following a minor bidding battle.

The two smaller players left behind are Mobius (MOBI) and Stellent (STEL). Stellent will eventually be bought by BEA since they are already in a close partnership. Mobius has a partnership with IBM but that may be in jeopardy once the FileNet acquisition is completed.

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Previous hit - Zomax (#110)

Hit #110

Zomax (ZOMX) is being acquired by San Francisco-based private equity firm The Comvest Group in an all cash deal valuing the company at $130 million. The offer, of around $2.09/share is a discount of 56% to my average cost of around $4.74/share.

While I definitely would have liked to see a better takeover price, I will happily take this one as any hopes of a turnaround/recovery were fast fading. I was expecting the buyer to come from the same space, not a private equity group. A group that is buying Zomax is likely to go after other, larger targets in this sector. Who will they be ?

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Previous hit - McData (#109)

Hit #109

McData (MCDTA) is being bought by Brocade in an all-stock transaction. The offer price, that translates to around $4.7/share is a discount of 48% to my average cost of around $9/share.

McData could have fetched a higher price, but I am happy receiving shares of Brocade which look undervalued. Brocade will itself be a target eventually, hopefully at a substantial premium, when the current options related investigations come to a close. Former Brocade executives could end up being the first to get some sentence in the ongoing options investigations.

The storage/storage-network space is consolidating at an extremely rapid space now, with very few left standing. I expect Dot Hill (HILL), Overland (OVRL), Network Appliance (NTAP), Xyratex (XRTX), Qualstar (QBAK), Western Digital (WDC), Ciprico (CPCI), Ampex (AMPX) to be all acquired in one last spurt of activity over the next 2 years.

I own Network Appliance and Western Digital stock, bought during the bear market lows, as well as Dot Hill, whose shares have dropped substantially since I bought them.

I am looking closely at Xyratex, Overland, Ampex, after recently scoring a hit with Advanced Digital (ADIC).

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Previous hit - Loudeye (#108)

Hit #108

Loudeye (LOUD) was acquired some 2 weeks ago by Nokia for $200 million in cash, valuing Loudeye shares at $4.5, a whopping 170% premium over the previous close, but still a huge discount of 70% to my average pre-reverse-split cost of around $11/share!

Being one of my largest individual holdings, I have followed this closely and learnt a lot of lessons while doing so.

The high price paid indicates that there were other potential suitors, most likely Microsoft and/or Openwave Systems.

Nokia is making another smart move, preparing itself for an era where cell-phones become the one and only device to own! I have owned Nokia shares ever since they came out with disappointing news a few months ago that battered the shares. Though shares have since risen around 80%, this is a good long-term hold that I don't intend to sell. The dividend yield is attractive, and is likely to go higher.

With its recent sharp pullback, Openwave may now become a target for Nokia or a Japanese buyer.

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Previous hit - Watchguard (#107)