Software companies abandon their deal

U.S. was probing Israeli purchase of Md.'s Sourcefire

Israeli, Columbia companies abandon deal

March 24, 2006|By JAMIE SMITH HOPKINS | JAMIE SMITH HOPKINS,SUN REPORTER

Israeli-based Check Point Software Technologies Ltd. said last night that it has backed off from its plan to acquire a Columbia high-tech firm, a sign that the national security concerns of a federal panel investigating the deal could not be allayed.

Check Point and Sourcefire Inc., which makes software that protects against hacker attacks, said yesterday that they had chosen to withdraw their application rather than let the Committee on Foreign Investment in the United States complete its rare full-blown investigation. Sourcefire's software is used not only by corporations, but also by highly secretive government agencies - though it's the same product in both cases, the company says.

CFIUS - a panel of 12 government bodies that approved the now dead Dubai ports deal - has investigated only about two dozen cases in its history. It was nearing the end of its 45-day timetable in the $225 million Sourcefire acquisition, and if it had not been approved, the panel would have forwarded the deal to President Bush - who had the power to reject it.

Check Point said in a statement that while it could pursue the acquisition later, it is instead exploring "partnership options" with Sourcefire that "will enable us to move quicker and work like true business partners, without being subject to the complex government process that involves 12 U.S. government agencies."

"Given the complex technology, the complexity of the process, the current scrutiny of CFIUS, we have come to the conclusion that it may be simpler and better to pursue other partnership alternatives or take more time to work with the government," Check Point said on its Web site yesterday evening.

Sourcefire manages an intrusion-prevention system called Snort that has open-source technology - meaning anyone can look at the underlying code. Sourcefire also sells proprietary network discovery and remediation software that works with Snort to improve anti-hacking efforts.

A Check Point spokeswoman said the company would not comment beyond its prepared statements. Sourcefire spokeswoman Michele Perry said "the lengthy ongoing delays in the CFIUS process and the current climate for international acquisition" prompted the firms to bow out.

Tony Fratto, a spokesman for the Treasury Department, which chairs the panel, said he could reveal nothing about the process because he is not permitted to share information about the committee's work or the details provided by the companies. The panel is charged with ensuring that foreign takeovers of U.S. companies or assets don't endanger national security.

"I can't comment on why they made the decision they did," he said of Check Point and Sourcefire. "I can acknowledge that we've accepted their request to withdraw the filing, but I can't comment on where the committee was in their deliberations."

The panel was criticized for its decision to approve Dubai Ports World's plans to assume some operations at six U.S. ports, including Baltimore. The company said this month that it would give up its management stake in the U.S. ports after a political controversy over the deal arose.

The committee, which has reviewed about 1,600 cases in its history, has rarely moved into the investigative stage. Only once has a president killed a deal - in 1990. But companies have sometimes chosen to withdraw when it became clear the committee would not approve.

Check Point attorneys "offered to attach conditions to the sale that executives believed were onerous but were intended to satisfy the concerns expressed by the review panel," but agreement proved impossible, the Associated Press reported last night, attributing the information to a "person familiar with the process."

The FBI opposed Sourcefire's sale - not merely to Check Point, but to any foreign firm - because the agency feared that would give away the keys to the government's most sensitive computer networks, a government source told The Sun this month.

"While we maintain the highest respect for the Check Point team, we are relieved that the process has reached a conclusion and look forward to exploring our partnership opportunities," Wayne Jackson, Sourcefire's chief executive, said in a statement.

Despite the generally warm relationship between the United States and Israel, the two have clashed over defense and security issues. In August, the countries signed an agreement that compels Israel to notify the United States before selling technology related to national security. The U.S. pressed for the pact after Israel attempted in 2004 to sell drone aircraft capable of destroying radar installations to China. U.S. officials worried the technology would be used against Taiwan.

Fears of Israeli spying in the United States have been a source of tension since Jonathan J. Pollard, a U.S. Navy intelligence analyst, admitted spying for Israel in 1987. He was sentenced to life in prison. Israeli officials have repeatedly denied conducting an intelligence operation in the U.S.

In January, Lawrence Franklin, a former Defense Department Iran specialist, was sentenced to 12 1/2 years in prison for passing government secrets to two employees of a pro-Israel lobbying group and to an Israeli government official in Washington.

Harry Clark - a partner at the Washington office of law firm Dewey Ballantine who has handled CFIUS cases - said last night that he was surprised by the companies' decision to abandon the sale.

"On one hand, this is a type of transaction that traditionally would receive pretty close scrutiny," Clark said. "But before recent events, I would think this transaction would have gone through. ... Will the [committee] look at things differently in light of the severe criticisms it came under particularly with the Dubai port transaction?" Clark said. "One does not know for sure, but this is not a particularly good sign."

Sun reporter Hanah Cho contributed to this article.

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