SELLING TECH'S ODD-COUPLE MERGER
By David Kirkpatrick

(FORTUNE Magazine) – THE SOFTWARE INDUSTRY MAY BE IN consolidation mode, but it's still tough to pull off a giant takeover (just ask Larry Ellison over at Oracle). The latest CEO frantically trying to sell a deal: Symantec's John Thompson, who has run into turbulence with his $11.9 billion plan to buy Veritas Software. Investors are questioning the merger's logic and have sent Symantec's stock price plummeting. Grumpy institutional holders, meanwhile, are threatening to veto the deal.

Thompson does have a couple of cards up his sleeve. For one, the offer is friendly. Secondly, Thompson has a long track record of stellar leadership. When he joined Symantec in 1999 from IBM (where many thought he had a shot at the top job), Thompson was handed a ragtag collection of unrelated products including contact management and faxing software. But he refocused the company on security software, putting it in perfect position when demand exploded for such products after repeated hacker attacks on Microsoft's operating system and browser. Along the way Symantec's stock rose 1,860%.

But that didn't stop investors from bailing when Thompson unveiled his merger plan. The stock recently stood 27% below its pre-deal price. Investors' biggest beef? Symantec and Veritas appear to have little in common. Symantec is the overwhelming leader in security and antivirus products for Windows-based computers. Veritas, on the other hand, dominates the corporate market for storing and archiving data. Thompson sees the contrast as a virtue, because Veritas will help Symantec diversify beyond consumer software (which now accounts for 52% of Symantec's revenues) toward enterprise products, where he expects greater long-term growth. "I want people to get out of their heads these categorizations of 'security' and 'storage,'" he says, "because they are starting to munge together."

Investors also fret that there is no template for a successful merger of large software companies. (The jury is still out on the only other such deal, Oracle's recent $10.3 billion acquisition of PeopleSoft.) Thompson's reply: "A man never walked on the moon either, until someone did."

What complicates the debate is Microsoft. In early January the software colossus took aim at the heart of Symantec's business, launching both a free antivirus tool and the preliminary version of its own anti-spyware product. Thompson needs to diversify--and fast.

So it's no surprise that he is in the middle of a whistle-stop tour of the country, meeting with investors and customers to sell them on the merits of the deal. As he puts it, "It's easy for people who've never seen a purple elephant to say, 'I don't understand this and therefore something's wrong with it,' but over time the world will see that this is right." In the end, many on Wall Street believe, Thompson will easily win investor approval. Then his real work will begin. -- David Kirkpatrick