Storage giant EMC to buy RSA for $2.1b

Data storage giant EMC Corp. of Hopkinton will pay about $2.1 billion to acquire RSA Security Inc. of Bedford, one of the world's leading makers of data security software. The deal will position EMC as a leader in information security at a time corporations and government agencies are demanding better ways to prevent the theft of personal data stored on computer networks.

``EMC is where information lives," said chief executive Joe Tucci, ``and tomorrow you will see that it will be where information lives securely."

RSA chief executive Art Coviello will remain in Bedford with a new title -- president of EMC's information security division. ``It's time security becomes an integrated part of the information infrastructure," Coviello said. ``EMC and RSA are the companies best positioned to accomplish this."

Allan Kranz, analyst at Technology Business Research Inc. in Hampton, N.H., said EMC is responding to demands for storage systems that can keep data secure without overwhelming users with complexity. ``They're seeing customers say, we want more security and we want it integrated into the products we're already purchasing from you," Kranz said.

EMC will pay $28 per share in cash for outstanding RSA shares, a substantial premium over RSA's Wednesday closing price of $19.36. Tucci confirmed published reports that at least one other company was in the running to acquire RSA. ``This company and this space [are] incredibly hot," Tucci said. ``This was a very competitive situation."

The markets closed before the deal was announced, but reports that it was imminent sent RSA shares soaring yesterday, closing at $22.88, up $3.52, about an 18 percent gain.

During a conference call yesterday, skeptical financial analysts questioned the price of the deal. EMC has about $7 billion in cash on hand, and has previously vowed to spend $3 billion to buy back the company's stock. A buyback would help boost the company's share price, which has languished at between $10 and $15 for several years. Some analysts asked if the RSA acquisition would hinder the buyback plan.

Tucci told them EMC's remaining cash hoard and ongoing cash flow would let it buy RSA and continue the share buyback. In any case, he said, it would have been a major strategic blunder to pass on the opportunity to purchase RSA.

``This is critical technology," he said. ``Not having it would put us at a severe disadvantage."

Companies routinely store vast amounts of information using insecure formats that can easily be read by data thieves. A widely publicized series of data losses and thefts has sparked public anger and led to calls for tougher data protection laws and more secure storage technology.

In one recent case, a laptop computer belonging to the federal Veterans Administration was stolen from an employee's home. The machine contained files on 26.5 million current or former United States military personnel. Yesterday, the Veterans Administration announced the stolen laptop had been recovered. Computer forensics experts at the Federal Bureau of Investigation said that the sensitive data on the computer's hard drive had not been accessed. As a result of the VA laptop theft, the Bush administration this week ordered government managers of information technology to establish new security policies, including mandatory encryption of sensitive data.

Tucci said EMC customers want products that will let them build data encryption technology into their storage systems. ``They're going beyond asking us to do this," Tucci said. ``They're demanding that we do this."

RSA makes a suite of data encryption software that can be integrated into a variety of EMC storage products. EMC already makes ``information lifecycle management" software that lets a company manage large quantities of data from creation to disposal. Adding RSA technology would allow storage network managers to set up centralized security policies that would make it easy to store critical data in encrypted form, only decoding it as needed, and securely discarding obsolete data.

The RSA acquisition will also carry EMC well beyond the storage business. One of RSA's best-selling products is a line of security tokens -- electronic devices that generate secure random-number passwords. The numbers are used along with standard passwords to gain entry to computer networks.

Corporations and government agencies have used the RSA technology for years to protect secret data. But the technology is now being used in consumer applications. For instance, European banks have begun issuing electronic tokens to their customers, and America's largest Internet provider, AOL, offers tokens to customers who want an extra layer of security.

Kranz said EMC is willing to expand into new areas. For example, the company entered the server software business with its acquisition of VMware Inc ., a maker of software that lets computers run multiple operating systems simultaneously. ``These guys don't seem to be afraid of venturing beyond their storage roots," Kranz said.

Hiawatha Bray can be reached at bray@globe.com.