Symantec and Blue Coat, Inc. report that they have entered into a definitive agreement under which Symantec will acquire Blue Coat for approximately $4.651 billion in cash. The transaction has been approved by the Boards of Directors of both companies and is expected to close in the third calendar quarter of 2016. Greg Clark, Chief Executive Officer of Blue Coat, will be appointed Chief Executive Officer of Symantec and join the Symantec Board upon closing of the transaction.
Blue Coat is the #1 market share leader and share gainer in Web Security with a widely recognized portfolio of integrated technologies serving as a trusted platform to deliver Cloud Generation Security to more than 15,000 customers worldwide. For Blue Coat’s fiscal year ending April 30, 2016, GAAP revenue was $598 million and non-GAAP revenue was $755 million, with 17% year-over-year growth, supported by new products and new customers. For the same time period, the company had non-GAAP operating margins of 22% and cash flow from operations of $135 million. Also for this time period, GAAP operating margins were -42%.
Defining the Future of Cybersecurity
With the acquisition of Blue Coat, Symantec will enhance its leadership position to define the future of cybersecurity and set the pace for innovation industrywide. The combined company will:
“With this transaction, we will have the scale, portfolio and resources necessary to usher in a new era of innovation designed to help protect large customers and individual consumers against insider threats and sophisticated cybercriminals. Together, we will be best positioned to address the ever-evolving threat landscape, the massive changes introduced by the shift to mobile and cloud, and the challenges created by regulatory and privacy concerns,” said Dan Schulman, Chairman of Symantec.“Greg and the entire Blue Coat leadership team have done an exceptional job of strengthening, growing and scaling their business. In addition to a proven track record of delivering scale and profitable growth, Greg brings significant leadership experience, deep security expertise and a history of successfully integrating companies into a single portfolio; he is the right person to lead Symantec as we advance our position as the leader in cybersecurity.
“On behalf of the Board, I want to thank Ajei Gopal for his decisive and insightful leadership as our Interim President and COO; he has been central to creating and driving our business momentum during a time of transition and has been an integral part of the team engineering the Blue Coat acquisition. I also want to thank Thomas Seifert and Scott Taylor, and the rest of the Symantec management team, for their fortitude and hard work, which has helped enable us to announce this transformational acquisition,” Mr. Schulman added.
Greg Clark, Chief Executive Officer of Blue Coat, said, “Today, Symantec keeps global enterprises, governments and individual consumers protected with solutions across threat protection, information protection and managed services. Likewise, Blue Coat is the trusted source for protecting billions of web transactions daily and is the clear leader in the growing cloud security market. Once combined, we will offer customers around the world – from large enterprises and governments to individual consumers – unrivaled threat protection and unmatched cloud security. With employees of Blue Coat and Symantec coming together, we will be well positioned to drive meaningful growth and push the boundaries of innovation. I am very excited about the opportunity to join Symantec as CEO and look forward to working with the strongest, deepest team in security to realize the many strategic and financial benefits this transaction will create.”
Thomas Seifert, Chief Financial Officer of Symantec, said, “With the $150 million in expected annual net cost synergies, in addition to our previously announced $400 million in planned net cost savings, this transaction will allow Symantec to improve our profitability while continuing to invest in innovation and drive growth. The acquisition is expected to be significantly accretive to our non-GAAP earnings creating meaningful value for our shareholders. We are reiterating our first quarter guidance and maintaining our commitment to our previously announced $5.5 billion capital return program, of which the remaining $1.3 billion will be returned by the end of the current fiscal year. We will also continue our practice of paying a quarterly dividend to our shareholders.”
Delivers Attractive Financial Benefits to Symantec Shareholders
On a pro-forma, non-GAAP basis, the combined company would have had $4.4 billion in revenues in fiscal year 2016, of which 62% would come from enterprise security. By the end of fiscal 2018, Symantec expects to realize $550 million in run-rate cost savings, of which $400 million will come from Symantec’s previously announced cost efficiency program.
Creating a Strong Organization and Leadership Team, Focused on Integration Planning
The Board of Directors will continue to be led by Symantec’s current Chairman, Mr. Schulman. Mr. Clark will serve as CEO and Mr. Seifert will continue as Chief Financial Officer.
Members of Blue Coat’s management team have not only agreed to join Symantec but also made the decision to rollover a substantial portion of their cash and options into the combined entity.
Mr. Schulman added, “The Board would like to thank Symantec’s management team for their continued dedication and commitment to our company and welcome Blue Coat’s executive team to Symantec.”
The integration of the two companies will be led by executives from both Symantec and Blue Coat, with integration planning to begin immediately. The companies expect an efficient and successful integration given their complementary product offerings and distinct customer footprints, as well as Blue Coat’s management team’s track record of integration. The combined company will be headquartered in Mountain View, California.
Investing in the Future of Symantec
In connection with the transaction, Silver Lake has agreed to make an additional investment of $500 million in 2.0% convertible notes due 2021 of Symantec, doubling its investment in Symantec to $1 billion. In addition, Bain Capital has agreed to make an investment of $750 million in the convertible notes. The convertible notes are noncallable and unsecured, and have an initial conversion price of approximately $20.41 per share.
In connection with this investment, David Humphrey, a Managing Director of Bain Capital Private Equity, will be appointed to Symantec’s Board of Directors, effective at the close of the transaction.
Financing and Path to Completion
Symantec intends to finance the transaction with cash on the balance sheet and $2.8 billion of new debt. The company is focused on paying down a significant portion of this debt within the next several years with cash on the balance sheet and through cash generation.
The transaction, which is expected to be completed in the third calendar quarter of 2016, is subject to the satisfaction of customary closing conditions, including applicable regulatory approvals.
J.P. Morgan is acting as lead financial advisor to Symantec. Barclays, BofA Merrill Lynch, Citi, J.P. Morgan and Wells Fargo Securities (in alphabetical order) are acting as financial advisors and are providing debt financing to Symantec. Fenwick & West LLP is acting as legal advisor to Symantec in connection with the acquisition and the convertible note investment, and Fenwick & West LLP and Simpson Thacher & Bartlett LLP are acting as legal advisors to Symantec in connection with the debt financing. Goldman, Sachs & Co., is acting as lead financial advisor to Blue Coat. Morgan Stanley & Co. LLC and Credit Suisse Securities (USA) LLC are also acting as financial advisors to Blue Coat. Ropes & Gray and Wilson Sonsini Goodrich & Rosati are acting as legal advisors to Blue Coat.