Axent deal topples stock

Rockville company buys British firm

analysts dislike price

April 01, 1999|By Mark Ribbing | Mark Ribbing,SUN STAFF

Axent Technologies Inc. got a clear message from Wall Street yesterday: Do not PassGo.

Axent, a Rockville computer security company, said yesterday that it has bought Britain's PassGo Technologies in a stock deal initially valued at $50 million.

Investors responded by sending Axent directly to jail: Three equity firms downgraded the company's stock, and Axent lost 25.96 percent of its share value in a single day, plunging $8.4375 to close at $24.0625.

Axent President and Chief Operating Officer Brett M. Jackson played down the market fury that greeted the acquisition. "There is some mixed reaction," he said. "A lot of people see the positives, there are several people who take a wait-and-see attitude. Beyond that, I can't comment."

PassGo produces what is known in the information-security industry as "single sign-on" technology, which allows users to get access to various parts of a computer system by using only one password.

This saves users from having to keep track of numerous passwords when using a network. In theory, this capability will become more important as businesses use bigger and more complex computer systems.

Nicole Schmidt of Josephthal & Co. in New York, who downgraded Axent from a "buy" rating to "hold" yesterday, said, "Single sign-on is a nice-to-have product, but it's not a must-have product."

Schmidt said Axent is paying seven times more for PassGo than the British firm garners in revenue. She added that the two companies have traditionally targeted different parts of the computer market, and may have a hard time meshing.

"I really wonder how this is going to work," she said.

Matthew D. Barzowskas of First Albany Corp. in Boston said investors were also concerned about the possibility that buying PassGo will dilute Axent's future earnings.

"With dilution to earnings, investors get very nervous about [share] valuation," Barzowskas said.

Not every analyst skewered the purchase. Naveen Chaudhary of Olde Discount Corp. in Detroit said Axent might have the right level of acquisition experience to make the deal work. Axent has bought several companies, including Internet Tools Inc., which it purchased Jan. 13 for $26.5 million.

"They have been pretty successful in quelling acquisition concerns, so I'm a bit surprised by the reaction," Chaudhary said. "It seems like a good fit."

Axent's Jackson, who said his company does not plan any job losses as a result of the acquisition, said the deal bolsters its presence in Europe.

Jackson said Axent had been selling a sign-on product of its own, and will now be the leader in that market. "This gives the company more and better technology in this particular space," he said.

Pub Date: 4/01/99

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