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CA to buy Netegrity for $430 million

The smaller firm's technology will help strengthen Computer Associates International's ability to provide network access tools, it says.

Computer Associates International announced on Wednesday that it has agreed to acquire Netegrity, a maker of network identity and access software, for about $430 million.

Executives at Islandia, N.Y.-based CA said the deal will strengthen the company's ability to provide network access applications along with the rest of its IT systems management products.

"Security continues to be critically important to CA, and we will ensure that we offer customers the broadest and deepest identity and access management (products) in the industry," CA's interim chief executive, Kenneth Cron, said in a statement.

Netegrity's software is used by systems administrators to assign network identities and passwords for access to business applications and Web software. The company's products and others like it are also known as provisioning tools. Such applications have become more widely used to automate the process of providing access to business systems and to revoke access when employees leave.

CA said Netegrity's operations, which are based in Waltham, Mass., will be integrated with its eTrust Identity and Access Management group. CA indicated that the "vast majority" of the Netegrity's approximately 400 employees will be retained.

In addition to its flagship SiteMinder access management product line, Netegrity also markets TransactionMinder, software designed to secure access to Web services applications, as well as IdentityMinder Web Edition, which provides administration tools for Web-based applications.

For CA, the acquisition stands as a positive step in its effort to rekindle its fortunes amid financial struggles and an upheaval in its executive ranks related to a long-running accounting scandal.

Last week, the company announced plans to cut 5 percent of its work force, or roughly 800 positions, as part of a restructuring effort. In addition, its former chief executive, Sanjay Kumar, and its former head of global sales, Stephen Richards, were recently charged with securities fraud and obstruction of justice. Both former executives pleaded not guilty to the charges.

The company also announced last week that it has reached a $225 million settlement with the U.S. Department of Justice over accounting fraud allegations.

The companies reported that they expect the deal to close sometime in the next three months. The proposed all-cash merger is valued at $10.75 per fully diluted share of Netegrity stock, or $340 million net of the cash and marketable securities on Netegrity's balance sheet.

Shares in the company's stock were valued at $7.75 just before the market opened Wednesday. The deal remains contingent on Netegrity shareholder approval, but CA said it has already received support from 10 percent of those individuals.

Industry watchers appeared bullish on the acquisition. Ron Schmelzer, an analyst at research company ZapThink, said both companies should benefit through the merger because they have complimentary products and Netegrity has established a solid presence in the network access and identification space.

"Many people were wondering when CA would look to add access and identification tools, and (Netegrity's) SiteMinder is considered one of the better products out there, so it's a good fit," Schmelzer said. "CA is doing a good job building out its product strategy for both management and security."

Schmelzer believes the market for provisioning tools will continue to expand as businesses look to build portals and Web services applications for accessing various enterprise software systems.

"When you have applications existing in silos, such as CRM systems or databases, the password systems included with these products may work well enough," he said. "But as you begin looking at building portals to multiple enterprise applications, or using Web services to access pieces of those systems, enterprise identification management becomes even more critical."