Wall Street: Acquisitions rock IT

Acquisition announcements shook the high-tech market this week, with Sun Microsystems' planned buy of Storage Technology leading activity

Acquisition announcements shook the high-tech market this week, with Sun Microsystems's planned buy of Storage Technology (StorageTek) leading activity that included buying companies eBay, Citrix Systems, McAfee and Lawson Software. The feeding frenzy is happening against a murky IT picture, in which industry consolidation is taken as a given.

One piece of good news: May saw a recovery in the Nasdaq Composite Index, weighted heavily with tech companies.

"April witnessed the steepest falls in tech indices of the year, but May has seen much of that decline reversed," according to a research note from Richard Holway, non-executive director of the supervisory board of consulting and analyst firm Ovum.

However, Holway hastened to add that the Nasdaq uptick in May was "recovery" rather than a year-over-year gain, and that though in May the Nasdaq index rose by 7.7 percent from April, it still closed down about 5 percent since Jan. 1. Only the service sector shows a solid gain for the year, and that is a relatively paltry (compared to IT's younger days) 4 percent, Holway said.

Gains in tech stocks this year have often been followed by drops as nervous investors take the opportunity to cash out and make some money. Acquisitions often have the effect of at least temporarily boosting share prices, especially among the companies being acquired. Unless an acquisition is seen to be an especially brilliant move by the buyer, it often has a deflationary effect on the buyer's share price.

There was mixed reaction to Sun's Thursday announcement that it will buy StorageTek for US$4.1 billion. Sun played up the buy as a way of offering users a complete range of products, including networking and server systems, to manage the "life cycle" of their data. The company so far has widely been seen to have failed -- relative to big competitors like IBM and Hewlett-Packard -- to persuade users to buy both servers and attached storage devices from Sun. This is despite the fact that Sun invented the NFS (Network File System) protocol that is used in the NAS (network attached storage) industry.

But several analysts said they would have rather seen Sun, with its coffers full from its legal settlement with Microsoft, make a big move in the services market, or even simply buy back some stock to bolster its share price. Investors reacted by pushed Sun (ticker symbol: SUNW) shares down by US$0.11, to close Thursday at US$3.79. StorageTek (STK) closed up by US$5.13, to US$36.36.

The planned Lawson US$480 million all-stock acquisition deal of Sweden-based Intentia International, also announced Thursday, was yet another sign of consolidation in the ERP (enterprise resource planning) arena, even though founder and Chairman Richard Lawson said, "This is not a typical software consolidation." He called it a combination of equal partners. Romesh Wadhwani will share co-chairman duties with Lawson and the merged company's international headquarters will be in Stockholm. The deal comes in the wake of Oracle Corp.'s acquisition earlier this year of PeopleSoft. At the close of trading Thursday, Lawson (LWSN) closed at US$5.25, down by US$0.70.

No spate of acquisition mania would be complete without an Internet deal, and Wednesday eBay said it would buy comparison shopping company Shopping.com for about US$620 million in cash. EBay said the combo will create a "premier online shopping experience" for individuals and businesses. Analysts noted that eBay is paying US$21 a share and that Shopping.com closed Wednesday trading at US$17.44. So, eBay is paying at least a 20 percent premium over the market value just before the deal was announced. Shopping.com (SHOP) soared Thursday, rising US$3.33 to US$20.77. EBay dropped by US$0.06 to US$22.85

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