Software Firms Struggle With Upload

Wall Street has been warming up to mergers lately. While the acquirer's stock normally slips a little bit on news of a merger, sometimes it surges, as Rayovac's did following its deal to purchase United Industries.

But not all deals meet with such enthusiasm. Perhaps the most prominent recent example is the merger between antivirus-software company Symantec (NYSE: SYMC) and storage-software firm Veritas (Nasdaq: VRTS).

When the deal was announced in December, the value came in at approximately $13.5 billion. Since then, however, Symantec's stock has been sliding, and the all-stock deal is now valued at $11 billion.

Wall Street has good reason to dislike software mega-deals: They tend to be failures. Sometimes, in fact, the failures are monumental -- Novell's (Nasdaq: NOVL) disastrous purchase of WordPerfect being a case in point.

Not surprisingly, the managements of Symantec and Veritas say they will buck the historical trend. And they have been aggressively promoting the deal to Wall Street by pursuing a global road show.

True, part of the weakness in Symantec's stock price is the recent correction in the Nasdaq. Yet there are still legitimate concerns over the merger.

For one, Microsoft (Nasdaq: MSFT) demonstrated its ever-spreading killer instinct by announcing that it is entering the antivirus market, which has been Symantec's main growth driver. As a result, investors are wondering whether the deal with Veritas is a signal that the growth is slowing down.

The integration of Symantec and Veritas also faces tremendous complexities. Symantec has been extremely skillful at the mergers-and-acquisitions game, but a deal that creates the fourth-largest software company will pose challenges on a new level altogether.

The merger is most likely a done deal, despite the challenges. Symantec CEO John Thompson has his credibility on the line, and dropping the deal would further scare investors.

But if the value of the merger falls further, other bidders may come to the table. Prospects would include Cisco (Nasdaq: CSCO), Oracle (Nasdaq: ORCL), EMC (NYSE: EMC), and even Microsoft. In fact, Cisco spent $500 million last year to purchase a storage-software company, Andiamo Systems. And bear in mind that the agreement with Symantec allows Veritas to take a higher price from any third party that's willing to pay a $440 million breakup fee.

Fool contributor Tom Taulli does not own shares in the companies mentioned in this article.