Media Moves

Coverage: Splitting to grow

October 10, 2014

Posted by Liz Hester

The latest company to decide to divide in order to get bigger is software company Symantec. Following in the steps of eBay and Hewlett-Packard, the well-known technology company will split its security and data-storage businesses.

Bloomberg’s Jordan Robertson had these details, including that analysts had wanted the company to divide:

Symantec Corp. (SYMC) said it’s splitting into two companies, a move that reverses a decade-old expansion effort by the biggest maker of security software.

The Mountain View, California-based company said in a statement today that its cyber-security and data-storage divisions would become separate publicly traded companies. Symantec said it made the decision after an extensive business review and had concluded it needed to be nimbler and more focused.

“It has become clear that winning in both security and information management requires distinct strategies, focused investments and go-to market innovation,” Chief Executive Officer Michael Brown, who was promoted to the role last month, said in the statement. “Separating Symantec into two, independent publicly traded companies will provide each business the flexibility and focus to drive growth and enhance shareholder value.”

Analysts and investors have long sought a breakup of the company, which has a market capitalization of $16.2 billion. They have argued Symantec’s businesses weren’t compatible, and that the company’s stock price was being hurt by fusing the high-margin security business with the less profitable storage division. Bloomberg News reported Oct. 8 that Symantec was exploring the split.

The Wall Street Journal story by Josh Beckerman pointed out that the security business was larger than the information management part of the company:

Symantec’s security business, which includes the Norton antivirus business, generated revenue of $4.2 billion in the fiscal year that ended in March. Its information management business, which includes data backup and recovery, had revenue of $2.5 billion in that same year.

The company expects to complete the spinoff by the end of next year.

Mr. Brown will be the president and CEO of Symantec, and Thomas Seifert will continue to serve as chief financial officer. John Gannon will be general manager of the new information management business, and Don Rath will be its chief financial officer.

Mr. Brown was named as Symantec’s chief executive last month after getting the job on an interim basis in March. Mr. Brown followed Steve Bennett, who had been fired amid sagging revenue and slumping shares. It was the second time that Symantec had dumped a CEO in less than two years.

Symantec also reiterated its guidance for the September quarter. In August, the company said it expected per-share earnings, excluding items, between 40 cents and 44 cents on revenue of $1.6 billion to $1.64 billion.

Symantec becomes the latest big company, including eBay Inc and Hewlett-Packard Co. in tech, to chose to break up lately, in part because of a belief that operations with different growth profiles are best managed as separate entities.

Soham Chatterjee and Arathy S. Nair wrote for Reuters about other recent technology splits:

Symantec’s break-up comes during a banner year for spinoffs. More than 60 spinoffs are expected to be completed this year, more than in any year since 2000, according to Spin-Off Research, a subscription service for hedge funds and institutional investors.

Hewlett-Packard Co (HPQ.N) said on Monday it would separate its computer and printer businesses from its corporate hardware and services operations.

Online auction company eBay Inc (EBAY.O) said last week it would spin off its electronics payment service PayPal.

A number of potential buyers, including Cisco Systems Inc (CSCO.O) and NetApp Inc (NTAP.O), will likely show interest in each of the companies Symantec splits into, Piper Jaffray analyst Andrew Nowinski said in a note.

FBR’s Ives said the “cash-cow” storage business could attract interest from private equity players.

The San Jose Mercury News story by Jeremy C. Owens points out the move comes on the heels of Brown being named the permanent CEO:

Brown makes the move less than a month after receiving the CEO job permanently — the former CEO of Quantum was appointed on an interim basis in March when Symantec ushered out its previous leader, Steve Bennett, after less than two years on the job.

“This was a very long and thorough process which we started last May,” Brown noted in a Thursday afternoon conference call, adding “the key factor in terms of timing was the board’s announcement of a permanent CEO.”

The change at the top and corporate split are part of a complete makeover Symantec has been constructing as the tech security business has left behind the antivirus structure that made the company a giant in Silicon Valley. Symantec already moved toward a different approach by introducing a network offering that focused on detection and immediate response to threats, similar to upstart rivals such as FireEye and Palo Alto Networks.

The company said its new security business would focus on using information gleaned from Symantec as well as its Norton consumer software to develop a storehouse of threats, then incorporate that knowledge to grow its managed-security offering. The business, which will continue to be called Symantec, collected $4.2 billion in sales in the 2014 fiscal year, Symantec said Thursday.

Analysts and reporters have suggested that Symantec could look for an acquisition of its storage business, and Forrester storage-industry analyst Henry Baltazar said Thursday the split would make such a move much easier.

The move could bring much needed focus to two very different businesses. It might also enable the companies to hire more technology specialists and other industry experts to be more innovative. Or it could be that Brown is setting up one of the divisions to be taken private or receive another investment. But all the recent technology splits indicate that it’s hard for larger companies to remain nimble enough to keep up with the pace of change.

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