IBM to Buy Internet Security Company for $1.3 Billion

BOSTON – IBM Corp. (IBM) said Wednesday it will spend $1.3 billion in cash to acquire Internet Security Systems Inc.(ISSX), which performs network monitoring and analysis services for companies.

The deal values ISS at $28 a share, an 8 percent premium over its $26 closing price Tuesday on the Nasdaq Stock Market. If the acquisition is approved by shareholders, the companies expect it to close in the fourth quarter.

Armonk, N.Y.-based IBM has now picked up three public companies this month alone. Two weeks ago, it reached a pact to buy document-management software provider FileNet Corp. for $1.6 billion. On Aug. 3 Big Blue agreed to spend $740 million for MRO Software Inc., which helps industrial companies track physical assets.

Buying ISS could bolster Big Blue's ability to take on what it calls "managed security services" for its business customers. ISS helps guard against data theft and other problems with automated monitoring products and with technical consultants, who would become part of IBM's vast services arm.

The deal also should help that unit with its stated goal of improving profit margins by integrating more software and other "repeatable" offerings into services deals, avoiding the need for IBM consultants to create expensive, customized packages anew for each client.

Based in Atlanta, ISS says its 11,000 customers include 17 of the world's largest banks. The company earned $38.5 million on $330 million in revenue last year; this year's revenue is expected to surpass $350 million.

ISS's 1,300 employees are expected to remain with IBM.

IBM and ISS had been business partners since 1999, but ISS CEO Tom Noonan said fuller access to IBM's sales force would dramatically broaden ISS's market.

"We were working well together as partners," added Val Rahmani, general manager of IBM's infrastructure management services. "This way we can move faster." She said the overlap between the companies' customer lists is "not extensive."

ISS shares rose $1.63 — or 6.3 percent — to $27.63 in morning trading on the Nasdaq. IBM stock fell 48 cents at $78.47 on the New York Stock Exchange.