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Veritas-Symantec: "A Different Merger"

With a shareholder vote on the planned merger between Symantec (SYMC) and Veritas Software (VRTS) expected by the end of June, the chief execs of both tech concerns have missed few opportunities to speak in front of investors, customers, and partners. The latest was on Apr. 25 at Veritas' annual customer conference in San Francisco.

Nonetheless, Wall Street still isn't sold on the merger. Since the deal was announced in December, security-software producer Symantec's stock has dropped more than 30%, ending trading on Apr. 25 at $19.07 per share. Shares of Veritas, which makes data-storage software, are down 26% since the merger announcement, lowering the deal's value from $13 billion to about $9.4 billion. Veritas shares closed trading on Apr. 25 at $20.68.

Even with the haircut, it's the second-largest merger in software history, and the CEOs are sticking to their guns. BusinessWeek Online reporter Sarah Lacy caught up with Veritas chief Gary Bloom at the company's conference to talk about the campaign to win shareholders' confidence and whether the business' past accounting problems have weighed on the deal. Following are edited excerpts of the conversation:

Q: Since the initial negative reaction to the merger, you and John Thompson [Symantec's CEO] have been out talking to investors and explaining the rationale behind it (see BW Online, 3/21/05, "Symantec's Thompson: "I Can't Wait to Compete""). Why do you think Wall Street still hasn't gotten on board?

A: It's not my job to project why they don't understand something that's obvious -- not just to John and me, but to our employees, to our customer, and to our partners. Essentially, the entire community that builds the technology and delivers it to the marketplace all get it, and the customers that buy it get it.

Now, usually if everyone that purchases it gets it, that usually equals revenue and profitability that Wall Street understands. But they're saying they don't get it, so I can't connect the missing dots any better than anyone else can.

Q: So there's not one thing you hear when talking to investors?

A: There's no one thing. We tend to hear that the transaction is different from most because we're not articulating strong financial metrics from a cost-synergy perspective. They say they would expect bigger cost synergies. Well, we're not trying to deliver bigger cost synergies -- it's a different merger.

Another thing we've heard is that, in software, they've never seen a merger of two leading players or two large players. Most software mergers of them, if you think about it, were about market-share consolidation, à la Oracle (ORCL) and PeopleSoft. Or it's about a big company buying a small company. Or a big company buying a broken company.

So if you look at all these combinations and say, "No, these are two leaders coming together to build a capability for the future based on what we see in the marketplace," if [they're] not technologists, it's hard for Wall Street to tangibly evaluate where we're going with it.

Q: Thompson has clearly said he's not going to let Wall Street set his company's strategy. When the stock is off 30%, as Symantec's is, don't you need to listen to the shareholders at some point?

A: It's an awkward spot because we fundamentally believe the vision and strategy we have is what's best for long-term shareholder value. It's a difficult balance of fiduciary responsibility. Is it your job as a CEO to just worry about what happens over the next three months or position the company for the future?

This is clearly a move that has the long-term focus of putting us in a better position. We're two leading companies believing we can do more for our customers and ultimately more for the shareholders by being together, rather than being independent. I think that pretty well meets the test of our responsibility to shareholder value.

Q: EMC (EMC) has done a good job of getting more into the storage software market. Does this merger make you more competitive with it in any way?

A: It eliminates two major customer concerns that were impacting us. One is: Will we end up aligned with a hardware vendor, and will we lose our software independence? We market ourselves heavily as having no hardware agenda. Well, if we were to be purchased by Hewlett-Packard (HPQ), as an example, then we would have a hardware agenda. Since this is a pure-play software company with Symantec, you eliminate that concern.

The second one is: Are we big enough in scale and scope to escape consolidation? Well, we'll be the fourth-largest software company in the industry. I would never say "never," but the likelihood that the combined company could be acquired is lower.

Q: What about recent accounting issues at Veritas? Do you think that has affected the perception of the merger at all?

A: No, I don't think it has had any impact. They involve prior people at the company and happened historically. The one that gets the most press to this day continues to be the AOL transaction. [AOL bought $50 million worth of goods from Veritas. Then, Veritas, in turn, bought $20 million worth of ads from AOL. Veritas had to later restate earnings as a result of the transaction]. It was done in September of 2000. It's not a recent transaction. It's just that the accounting carries through for a number of years.

People mostly know this is historical. If you look at the management team, no one involved is still on the team. And the board has completely turned over, with the exception of one member.

Q: Is it something you've heard shareholders bring up when you talk about the merger?

A: I think they're looking for us to get it cleaned up and behind us. A good indication [that it's happening] is in [our annual report, where] we talked about the settlement of shareholder class-action lawsuits. It's another milestone toward putting it behind us. The goal is obviously to have it behind us and not bring it into Symantec.

Q: What will you and Thompson each bring the management team?

A: I definitely come at it from a more technical background, and John comes from more of a sales background. You can imagine, we both have our ways of wanting to do things. I recognize pretty clearly he's the CEO, and part of accepting doing the merger was accepting he'd be the CEO, and I'm comfortable with that. I worked for [Oracle CEO] Larry Ellison for years so, in contrast, I think John will be a teddy bear to work for.

Q: Speculation that the CEO of the smaller company in a merger will leave is common, and plenty of people don't think you'll stick around. What do you say to them?

A: Well, nothing can eliminate that. They have to wait and see, and I have to wait and see. I'm going into it with the intention of staying. I'm having fun and helping customers achieve great things, and [I will] have an influence in the company. If those three align, I'll still be there.

Keep in mind that I'm not your typical Silicon Valley guy who jumps jobs. I spent 14 years at Oracle. Not many people in the industry have spent 14 years at Oracle. [That] is equivalent to the person who spent 50 years at IBM (IBM). So there are no guarantees in life, and I'm not here to give any, but I'm excited by the merger.

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