Symantec Admits to ‘One Enormous Mistake’ with Veritas Buy

Symantec made “one enormous mistake” in its pursuit of storage software supplier Veritas, according to statements Symantec CEO John Thompson made on Monday, in his first public comments since the merger of the two market leaders was completed Friday.

“We didn’t say ‘why,'” Thompson said in an interactive discussion Monday morning with about 80 CIOs and business executives from U.S. companies, at the Ziff Davis CIO Summit in Pebble Beach, Calif.

“The synergy wasn’t obvious” to investors and shareholders of the two companies, he said. Veritas was perceived as a supplier of software to corporations, while Symantec was seen as a supplier to individuals—even though half of its business before the merger was with corporate customers.

Instead of explaining to its business customers why the deal was important and logically complementary, the company spent too much time on numerics, Thompson said. Among the most important figures were that the merger would double Symantec’s size and create the fourth-largest software company in existence. Symantec had revenues last year of $1.9 billion, while Veritas saw revenues of $2.0 billion.

With little public explanation of the underlying reasoning, investors’ confidence in the deal sank along with its value, which dropped from $13.5 billion to as little as $9 billion before finally closing at about $11 billion on June 24. That made it, by a hair, the largest software merger to date, barely eclipsing the $10.6 billion acquisition of PeopleSoft completed at the end of last year by Oracle.

The preoccupation with size instead of strategy led to confusion, Thompson said. The first large investor that he encountered “said this is a purple elephant,” he recalled.

Thompson had to ask what that meant.

The response: “That’s the point: No one has seen a purple elephant before, and no one knows what to do with it.”

The “why” behind the birth of the elephant, Thompson said, was to create a company that enables corporations to build information systems that can withstand attacks from hackers and to constantly back up data, replicate data and recover both information and operations consistently.

Helping companies to develop “resilient” information systems is particularly important, he noted, given the harm that can come from a single worm, such as Slammer, if a company is not prepared. That 2003 attack on computers cost companies more than $1 billion, according to London-based researcher Mi2g Ltd.

But other risks, such as holes in a company’s basic human processes, also are continuous. Case in point: the damage to the reputation and customer service of Citigroup’s finance unit when United Parcel Service lost a box of computer tapes containing 3.9 million customer records on the way to a data repository

With customers concerned about buying products from vendors that are not No. 1 or No. 2 in their markets, Thompson said, the deal also made strategic sense. Symantec fits that bill in the realm of security software, as Veritas does in storage software.

Now, Symantec is merging the 1,500 sales representatives that serve its corporate customers with 2,200 from Veritas, to create a 3,700-person worldwide sales force—just for business customers.

For now, all jobs are safe in sales, he said. But the next big task has yet to start: integrating the operations– and cultures–of the two companies.

Under Thompson, Symantec’s culture has been based on “command and control” structures. Under former Oracle executive Gary Bloom, a more “go-go” culture has ruled, Thompson acknowledged. .

“It’s going to be interesting,” he said, to manage the merger.

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