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Hewlett-Packard Said to Be Near $1.5 Billion Deal for ArcSight

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Sept. 13 (Bloomberg) -- Hewlett-Packard Co., the world’s biggest personal-computer maker, is near an agreement to buy security-software maker ArcSight Inc. for about $1.5 billion in cash, according to a person with knowledge of the matter.

The deal may be announced as soon as today, said the person, who declined to be identified because the discussions are private. ArcSight had a market value of $1.21 billion based on its Sept. 10 closing stock price. The Wall Street Journal reported the planned transaction earlier.

A purchase would follow acquisitions by HP in areas such as smartphones, services and networking equipment, lessening its dependence on lower-margin computers and servers. HP’s interim Chief Executive Officer Cathie Lesjak agreed on Sept. 2 to pay $2.35 billion for 3Par Inc., a maker of storage systems, winning a bidding war with Dell Inc. by offering more than three times 3Par’s $9.65 closing stock price on Aug. 13, before Dell’s interest was made public.

HP has “plenty of cash, and they want to buy before Dell buys,” Albert King, chief investment officer at Prophet Capital Inc., said from Taipei. “HP wants to put their cash to work, because they may think their existing business may not provide similar growth momentum in the future.”

The ArcSight deal would help HP serve the data-center market, a linchpin of its growth strategy, said Aaron Rakers, an analyst at Stifel Nicolaus & Co. Security software could assist customers in managing the centers, which consist of large rooms of servers, he said. The company is trying to turn its leadership in PCs into a bigger role in corporate computing.

“Software is very important to HP,” the St. Louis-based analyst wrote in an e-mail. Rakers recommends buying HP shares.

Tracking Suspicious Activity

Mylene Mangalindan, a spokeswoman for Palo Alto, California-based HP, declined to comment. Spokesmen for ArcSight didn’t immediately return calls placed outside normal business hours.

ArcSight, a maker of software that is used to identify suspicious activity on a corporate network, may help HP better incorporate security features into other products. Intel Corp. agreed last month to pay $7.68 billion for McAfee Inc., a provider of programs that protect computers from viruses and malware. The chipmaker paid a 60 percent premium, underscoring the growing importance of computer security and fueling speculation that related deals may be in the works.

Based in Cupertino, California, ArcSight also specializes in programs that help companies and government agencies meet compliance requirements for their computer systems. It has more than 1,000 customers, such as the U.S. Federal Reserve and Verizon Communications Inc., according to its website.

Rising Profit

Net income at ArcSight almost tripled to $28.4 million in the fiscal year that ended in April. Sales increased 33 percent to $181.4 million in the period.

ArcSight dropped or 1 percent to $35.10 on Sept. 10 in Nasdaq Stock Market trading. The shares have jumped 39 percent since the start of August amid speculation it may be the target of a takeover.

HP has declined 26 percent this year in New York Stock Exchange composite trading. The stock fell 54 cents, or 1.4 percent, to $38.28 on Sept. 10.

Former HP CEO Mark Hurd left Aug. 6 after the company said he violated standards of business conduct. An investigation found inaccurate expense reports filed in his name that had the effect of concealing a personal relationship with an HP contractor. He has since been hired as a president of Oracle Corp., reporting to that company’s CEO, Larry Ellison.

HP has hired the firm Spencer Stuart to help it find an executive who can replace Hurd permanently. Lesjak, chief financial officer, has taken herself out of the running.

To contact the reporter on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net

To contact the editors responsible for this story: Katherine Snyder at ksnyder@bloomberg.net; Tom Giles at tgiles5@bloomberg.net

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