Network storage and software company EMC (NYSE: EMC) likes doing deals. Motley Fool writer/analyst and resident curmudgeon, yours truly, does not especially like companies that do a lot of deals. After all, if you (the management) don't think your company is good enough as-is, why should I?
And yet, I still have a soft spot for EMC. Whether that's because I think most of the deals they do make a lot of sense, or because I'm an old softy and EMC was the first stock I ever owned, is probably best left for others to speculate upon. Still, even I have to look at the recently announced deal for RSA Security (Nasdaq: RSAS) with a bit of skepticism.
EMC announced that it will pay $28 per share in cash for RSA Security, a net deal value of about $2.1 billion. Now, I'll admit that I almost always think software stocks look expensive, but even my buddies in hedge fund-land who focus on software think that EMC really paid up for this company. Even granting EMC management's claims that there was active bidding competition for RSA, they paid a 65% premium to the 50-day moving average and a 74% premium to the 200-day average.
So why buy RSA? Well, for starters, EMC had long since identified security as a billion-dollar business possibility. What's more, management claims that customers have been telling them that they want built-in security with their storage systems. And if they don't do it, perhaps IBM (NYSE: IBM) or Hewlett-Packard (NYSE: HPQ) will. Or maybe companies like Microsoft (Nasdaq: MSFT) and Network Appliance (Nasdaq: NTAP) will team up and offer such a combination.
You could argue, though, that maybe EMC should have foreseen these demands a while ago and either built up its own internal security software capabilities or bought a company like RSA Security back then. And while I can appreciate that EMC may have felt pressured by the fact that others were about to bid for RSA, I'd like to see a little more in the way of the originally promised benefits from deals like Documentum and Legato before taking another big bite at the acquisition apple.
I want to believe this will work out for the best for EMC. Sure, some investors are howling that the company should have spent the cash on share buybacks, but I'd like to ask those people something -- how do share buybacks make you more competitive in the marketplace? In any case, while I'm worried about EMC's low organic growth today, perhaps it's assembling the necessary pieces and parts to take another run at more impressive growth tomorrow.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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