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EMC Shares Plunge on Word of $2.1B Deal
Data storage provider EMC Corp. saw its stock dive Friday after announcing a $2.1 billion deal for RSA Security Inc. that represented a hefty premium for the computer authentication provider.
EMC said after markets closed Thursday that it will pay $28 for each share of RSA, a 22 percent premium above the $22.88 price at which RSA's shares closed -- and a 45 percent premium over RSA's closing price Wednesday, the last day of trading before RSA confirmed it was in buyout talks.
On Friday morning on the Nasdaq, RSA was trading at $27.29, its highest level since 2001. Meanwhile, investors sent shares of EMC down 94 cents, or 8.4 percent, to $10.31 -- the stock's lowest level since September 2004.
EMC's top executive, Joe Tucci, told analysts in a conference call Thursday that "a very competitive situation" emerged after RSA recently sought out prospective buyers interested in expanding their information security offerings.
In response to an analyst's question why EMC chose to buy RSA at a big premium rather than form partnerships with it, Tucci said, "RSA wasn't going to be around" and would be quickly snapped up by a rival.
Several analysts questioned whether EMC was paying too high a price for RSA -- the company's biggest-ever acquisition -- and whether EMC might realize better returns by stepping up an existing program to buy back shares of its long-stagnant stock.
Tucci said the deal will yield long-term gains, and address increasing demand from EMC's corporate customers to use encryption and other techniques to better secure data.
"This was a missing piece in the information infrastructure puzzle," Tucci said. "If we do this right, I absolutely, positively, believe there is upside."
Tucci, EMC's chairman, president and CEO, and Art Coviello, RSA's president and CEO, did not identify other companies that expressed interest in buying RSA, a 20-year-old company with about 1,200 employees and $310 million in revenue last year, compared with EMC's nearly $10 billion.
RSA is known for an annual security conference that it stages, as well as millions of business card-sized "SecurID" tokens that display an ever-changing six-digit code computer users must type to gain access to networks. One of the companies that became today's RSA was founded by three Massachusetts Institute of Technology professors who helped develop a seminal method of cryptography.