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Legato investors sue to block EMC bid, but why?

Life support taken to court

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Application security programs and practises

A pair of lawsuits have been filed against Legato as several befuddled investors seek to cut the rope attached to a lifesaver thrown out by EMC.

EMC is prepared to pony up $1.3 billion for the struggling storage software maker, which seems like a decent bid. Legato's market cap stands at just over a billion dollars, and the company has been struggling to break even. Veritas, IBM and others pose a nasty threat to Legato's future.

Some shareholders have ignored the inevitable, however, by charging that Legato executives structured the EMC buyout offer to guard parts of their bonus plans. The lawsuits, filed in the Santa Clara, California, Superior Court, also claim that the EMC offer was conveniently announced ahead of Legato's earnings due out later this month. The lawsuits seek to block EMC's acquisition altogether.

Even robust second quarter earnings would do little to offset the $229 million net loss Legato posted in 2002. This is not the healthiest of companies.

Rumors have it that EMC already beat out competing bids from the likes of Sun and HP for Legato. What other vendor could stand to fork over more than $1.3 billion for a muted software company?

Why not go with the flow here and cash in? Legato users appear excited by the prospect of having EMC's deep pockets backing up their software investment. EMC has an unmatched fervor to become a software powerhouse, and this should be a good thing for Legato customers.

Perhaps the EMC shareholders should be more concerned. After hammering away at this software thing all year, EMC's app revenue came in flat. Will adding Legato's struggles to the mix really help? ®

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EMC's services biz boosts Q2
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