HP to acquire ArcSight for $1.5 billion

Tech giant says the security and compliance management company's "superior technology" complements HP's existing security portfolio of hardware, software and services.

Hewlett-Packard said Monday that it will acquire ArcSight, a security and compliance management company, for $43.50 per share, or a total of $1.5 billion.

The technology giant said that ArcSight's "superior technology" is complementary to HP's own existing security portfolio of hardware, software, and services. ArcSight's products allow customers to monitor their networks, data centers, and applications for security threats and other types of unusual activity.

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"From a security perspective, the perimeter of today's enterprise is porous, putting enormous pressure on clients' risk and compliance systems," Bill Veghte, HP's executive vice president for software and solutions, said in a statement. "The combination of HP and ArcSight will provide clients with the ability to fortify their applications, proactively monitor events, and respond to threats."

In morning trading, ArcSight shares were up around 25 percent, hovering in the vicinity of HP's per-share offer.

Earlier this month, HP won an intense bidding war with rival Dell to acquire storage company 3Par for $2.4 billion.

In a conference call Monday morning, Veghte discussed the reasons behind the ArcSight deal.

With everything being connected today, especially through the public Internet, employees and customers have come to expect access, Veghte said. But with that access comes greater risk through more sophisticated threats and attacks. Along with the risks, too, comes a need to comply with regulatory demands. As a result, companies need a new approach to protect their enterprises and to lower their compliance costs.

Joining HP's IT management software and Secure Advantage with ArcSight's security products will give IT a broader view of activity in their enterprise and provide that new approach, according to Veghte.

The combination of products from the two companies will help IT monitor all activity in real time, understand the threats and risks to the business, and take action against those threats, Veghte said. ArcSight's compliance piece would also help companies cut the costs of keeping up with regulatory compliance, he added. This approach would break down the traditional silos by offering constant feedback between IT operations and security staff and looping it back to the people designing the applications and services, said Veghte.

Veghte lauded ArcSight's product lineup, such as its logging engine to capture security activity and its correlation event engine to provide IT with an overview of security risks.

Tech giants eye security
The ArcSight deal follows HP's announcement just last month that it would buy Fortify, which makes software that integrates security at the application development level. These latest acquisitions may help HP catch up with other major tech players spending big money on businesses to carve out a niche in the hot security market, which Veghte said is growing at double-digit levels.

In its $7.68 billion bid to acquire McAfee, also announced in August, Intel likewise cited the need to provide its customers with more integrated security solutions. Last year, HP rival IBM bought database security firm Guardium to provide more advanced protection for large-scale databases.

In looking at ArcSight, HP said it found a strong and growing business with good operating margins. Some reports said that HP engaged in a bidding war for ArcSight with other tech companies, with the Wall Street Journal reporting that bidding quickly shot past $40 a share. In response, Veghte said that HP was confident about the deal but declined to speculate further.

The companies expect the deal to close by year's end subject to the usual regulatory conditions. Steven Filer, vice president of investor relations, said at the conference call that HP doesn't expect the acquisition to dilute its fiscal 2011 earnings in any material way. The company is also facing the cost of its 3Par acquisition as well as approval to buy back up to $10 billion in stock. But Filer said that HP still has a strong balance sheet and cash flow and feels comfortable with the acquisitions and stock buybacks.

ArcSight, which is based in Cupertino, Calif., was founded in 2000 and went public in 2008.

CNET's Jonathan Skillings contributed to this report.

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