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SafeNet snags enterprise security company

The network security provider announces a deal to buy Rainbow Technologies, a move that should boost SafeNet's government business and add antipiracy technology to its product line.

SafeNet announced on Thursday an agreement to acquire enterprise security company Rainbow Technologies, a move that should boost SafeNet's government business and add antipiracy technology to its product line.

Network security provider SafeNet will issue 0.36 shares of common stock for every outstanding share of Rainbow common stock in a deal valued at $457 million. After the deal, SafeNet shareholders will own 57 percent of the combined company, and Rainbow shareholders will hold 43 percent.

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"We recognized that to achieve our goal of being a premiere security company required a partner with the same vision," Walt Straub, CEO of Rainbow Technologies, said in a statement.

The deal continues the latest round of consolidation in the security industry. On Monday, security software company Symantec said it planned to buy secure network provider SafeWeb for $25 million for its virtual private network (VPN) technology, which is based on a common encryption standard all major Web browsers use. The deal comes after network security company NetScreen Technologies' announcement that it would shell out $265 million for Neoteris, a major provider of the same VPN technology.

The latest merger will put SafeNet in the same market. Rainbow Technologies makes encryption hardware that enables secure socket layer (SSL) networks, a similar product to those Neoteris and SafeWeb sell. SSL technology can be used to create virtual private networks that don't require running additional software on PCs and laptops.

"I don't see SafeNet becoming a big player in that market," said John Pescatore, vice president for Internet security at business intelligence firm Gartner, adding that it seems that the main reason for the deal "comes from the government side of things."

The deal boosts SafeNet's government business by about $70 million and adds antipiracy technology that could allow the combined companies to offer new products in the digital rights management market, SafeNet CEO Anthony Caputo said in a statement.

The announcement was followed by a drop Thursday of more than 22 percent in SafeNet's stock price, to $31.81.