Network Associates buys TIS

Hoping to build its share of the security software market, Network Associates (NETA) said today that it will acquire Trusted Information Systems (TISX), which makes firewall and other security software, in a stock-swap deal worth roughly $300 million.

Under the terms of the agreement, Network Associates will swap 0.323 of a share for each share of TIS. Both boards have approved the merger, and the companies plan to complete the transaction within 90 days, subject to regulatory reviews and the approval of TIS shareholders.

"It's a very smart strategic move for them. The firewall area was a gaping hole for Network Associates. And this sends a message to competitors--namely Check Point," said Bruce Smith, an analyst with Merrill Lynch.

Network Associates claims the acquisition makes it among the largest vendors of security software. Through the deal, the company gains TIS?s Gauntlet firewall, which TIS claims is the second most widely used firewall product. TIS also sells virtual private networking software and intrusion detection tools.

"With their marketing clout and financial resources, [they] should be able to make hay in the firewall market, and they will drive down pricing," Smith said.

Network Associates was formed late last year through the merger of McAfee Associates and Network General. Last December, the company also acquired encryption software company Pretty Good Privacy.

The acquisition comes as no surprise. Network Associates recently announced a $300 million convertible zero coupon bond, according to analysts. The money was earmarked for an acquisition, and analysts suspected that the company was shopping for a security firm.

Smith expects Network Associates to continue its buying spree later this year. "I would expect three to five acquisitions in other areas of security and network management," he said.