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Dawn Kawamoto

Staff Writer, CNET

Faced with muted enthusiasm from investors, Symantec and Veritas outlined their case to shareholders Wednesday over the benefits of their pending $13.5 billion merger that will marry the security giant and a leading storage company.

Symantec, which announced plans last month to acquire storage vendor Veritas, is hoping to become the one-stop shop for chief information officers looking to consolidate the number of vendors they use. The new company would offer CIOs data storage, security protection and information recovery technology.

The CEOs–Symantec’s John Thompson and Veritas’ Gary Bloom–said their customers, partners and an assortment of hardware vendors have responded to the merger in a “positive fashion,” but investors have yet to fall in line. Thus came Wednesday’s Webcast pitch–the companies will need their investors, as well as regulators, to sign off on the deal.

“The deal will close sometime in the second quarter of this calendar year. We don’t expect any regulatory issues, since there is no product overlap, and, as investors begin to understand the merger, we don’t think this will be an issue,” Thompson said during the Webcast.

He said he could not understand why Symantec’s price-to-earnings ratio has declined since it announced the Veritas merger, even though the company expects to grow 18 percent in fiscal 2006 as a merged entity.

“There’s no other software company over $3 billion that has faster growth,” Thompson said. Symantec expects to generate revenues of $5 billion and become the fourth-largest software company, post merger. It also expects to save $100 million in costs over the first four quarters after the deal closes.

Shares of Symantec and Veritas, however, are both down since the deal was announced roughly three weeks ago. The CEOs stressed that other parties have shown more enthusiasm.

“Customer response has been great,” Bloom said. “Hardware vendors have responded positively, too…It will unleash a whole new wave of partnering opportunities because they will no longer be concerned about (competition from) Veritas. It’s a funny twist, and one we didn’t expect, but it’s positive, nonetheless.”

Planning a future together
The companies have not announced when they would unveil a combined product plan. Bloom said Symantec would loosely couple, or package, its products with Veritas’ while it works on developing more deeply integrated product offerings to make it less complex for CIOs to handle risk management and data storage regulations and security issues.

Analysts have been concerned with the challenge Symantec may face in selling combined products and services to customers. They note that an enterprise might have one person in charge of buying security software and another handling data storage decisions.

“A lot of customers we call on are the same ones that Symantec calls on. But we don’t need three or four (sales representatives) to manage the relationship,” Bloom said. “We’ll map out who has the strongest relationship and bring in specialists in the field. In some cases, we may have two account representatives.”

The CEOs dismissed speculation that Veritas had been attracted to Symantec’s acquisition offer as a defensive move against Microsoft. Microsoft is working on its next version of Windows XP, Longhorn, due in 2006. But Bloom noted that Longhorn is not slated to have storage management capability until the server version is released in 2007.

Thompson pointed out that the merger is between two market leaders, rather than a strong company buying a weak one, or a large company acquiring a small one.

“We are market leaders that are coming together, and that is why this merger is so unique,” Thompson said. “And perhaps that is why some people have viewed this with some trepidation.”