Md.-based SafeNet plans merger

Deal with Calif. company valued at $457 million

October 23, 2003|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

White Marsh-based SafeNet Inc., a leading network security company, said yesterday that it will merge with an Irvine, Calif., maker of security products and authentication tools in a $457 million deal expected to close early next year.

The merger with Rainbow Technologies Inc. is expected to add about $70 million in government business to SafeNet, whose clients include the Department of Homeland Security, the Federal Reserve Bank, the U.S. Postal Service, the U.S. Department of Defense and the FBI.

The combined company will create a security business with vast expertise in encryption technology and the capability to offer an array of products that includes public and private network security, anti-piracy software and electronic license distribution.

Anthony A. Caputo, SafeNet's chairman and chief executive said during a conference call last night, "We have complementary products, a similar culture that values very highly strong security, and awareness in the community for system level security. It made sense to combine companies."

SafeNet has made a name for itself by developing and managing network security systems for security-conscious government agencies, financial institutions and large enterprises around the world.

Rainbow is a market leader in several security technologies, including authentication tokens that eliminate the need for passwords. Last year, it lost $8.1 million on revenue of $126 million.

The merger is expected to close during the first quarter of next year and is subject to customary closing conditions, including the approval of shareholders from both companies.

SafeNet is to issue 0.374 shares of its common stock for each outstanding share of Rainbow stock.

Shares of SafeNet stock fell $1.93 to $41.02 on the Nasdaq stock market yesterday. Rainbow's stock rose 4 cents to $11.25.

It was unclear last night how the merger will affect SafeNet's 225 employees. The company has nearly doubled its work force since this time last year and is preparing for a move next month to a new, larger headquarters in Harford County.

SafeNet released third-quarter results yesterday that showed revenue increasing nearly 100 percent, to $17.6 million, in the three months that ended Sept. 30. In last year's third quarter, revenue was $8.8 million.

Net income at SafeNet was $2.6 million, or 20 cents per diluted share, in the third quarter, compared with $800,000, or 10 cents per diluted share, posted for the 2002 quarter.

The results reflect the addition of two full quarters from the operations of Cylink Corp. in California, which SafeNet purchased in February.

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