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HP eyes $1.46bn ArcSight security buy

Hey, Dell. Wanna bid higher?

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Hewlett-Packard is close to buying security software maker ArcSight for $1.46bn, according to the Wall Street Journal.

ArcSight was founded in 2000 and provides a line of security information and event management (SIEM) products to keep track of IT information assets and detect when compliance rules or systems themselves have been breached by both company insiders and outsiders on the other side of the firewall. ArcSight was founded by Hugh Njemanze, the company's current chief technology officer, as part of the SVIC technology incubator received venture capital funding from Kleiner Perkins Caufield & Byers, Integral Capital Partners, and the CIA.

The company went public in February 2008 and currently has more than 1,000 customers, mostly large enterprises with complex security and monitoring issues. ArcSight counts Cisco Systems, IBM, McAfee (soon to be part of Intel), Oracle, SAP, and Unisys as its key strategic partners.

The company has grown steadily in the past five years, with sales of $39.4m in the fiscal year ended in April 2006 and rising steadily, despite the Great Recession, to $181.4m in the year ended this past April. And ArcSight shifted from big losses in 2006, when it lost $16.7m against that $39.4m in sales, to solid profits in 2009 and then nearly tripled net income again to $28.4m in the year ended in April 2010.

Bringing 16 per cent of revenues to the bottom line is absolutely respectable. And significantly, in early September, ArcSight reported its numbers for the quarter ending July 31, and revenues shot up by 39.3 per cent, to $48.1m in the quarter and net income nearly tripled to $3m. The final quarter of fiscal 2010 benefited from a $14.9m tax benefit, helping triple profits for fiscal 2010, but the net income really did triple in Q1 fiscal 2011.

According to the WSJ, ArcSight has been on the block since Intel ate McAfee and the company is seeking around $42 per share. That would be a 19.6 per cent premium compared to ArcSight's close price of $35.10 on Friday, which gives ArcSight a market capitalization of $1.22bn. ArcSight had $130.7m in cash and no debts as the July 31 quarter came to a close, which would put the HP acquisition at around $1.38bn

Of course, it is always possible that someone else - like Oracle or IBM, and maybe even Dell, which is nursing a grudge after losing out a several-week-long bidding war with HP over storage provider 3PAR - will want to swoop in and try to steal ArcSight away. HP ended up paying $2.4bn for 3PAR, considerably more than Dell's $1.15bn initial offer.

Bootnote: On Monday morning, HP confirmed that it was buying ArcSight for $43.50 per share, or $1.5bn. Unless someone tries to steal it away, as we said above. ®

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