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Iron Mountain heeds critics, sells off digital assets

Autonomy Corp., of UK, to pay $380m

By Hiawatha Bray
Globe Staff / May 17, 2011

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Iron Mountain Corp., the Boston document storage company, is making good on a promise to investors, selling a major portion of its digital data storage business to Autonomy Corp. for $380 million in cash.

“This transaction is another significant step in delivering on the commitments we made in our three-year strategic plan announced in April,’’ Richard Reese, Iron Mountain’s chief executive, said in a statement. The company declined requests for further comment.

Iron Mountain came under fire in March from Elliott Management Corp., a New York investment firm that owns slightly less than 5 percent of the company’s shares. Demanding better returns for shareholders, Elliott urged the company to get out of the digital data business, which had produced lackluster returns. Iron Mountain faced tough competition from companies like EMC Corp. in Hopkinton and IBM Corp.

At first, Iron Mountain resisted Elliott’s demands, enacting a “poison pill’’ plan to fend off a possible hostile takeover. But last month, the company acknowledged its own review had cast doubt on the wisdom of its decade-long investment in digital data services.

The company’s chief executive, Bob Brennan, was replaced by Reese, who agreed to consider selling the digital storage assets.

Autonomy, based in Cambridge in the United Kingdom, will buy Iron Mountain’s digital archiving service, which provides long-term storage for files that companies rarely use but must preserve, such as e-mails and contracts. Autonomy also gets Iron Mountain’s e-discovery product line, which helps corporate legal departments identify documents that may be needed in lawsuits or regulatory actions, and ConnectedBackup, an online backup and recovery service that protects businesses from catastrophic losses of vital data.

Iron Mountain will continue to sell these products, relying on Autonomy to deliver the services.

Iron Mountain will retain control of several other digital storage products, including a software escrowservice that lets businesses securely store copies of the computer programs vital to daily operations. Software held in escrow can be used to restore systems contaminated by malfunctions or attacks by network vandals.

Also continuing are Iron Mountain’s products for storing digitally scanned copies of paper documents, and a service for storing medical images such as X-rays.

Laura DuBois, program vice president for storage software and solutions at IDC Corp. in Framingham, said that because Iron Mountain built its digital data business through acquisitions of other companies, it used a variety of incompatible hardware and software platforms. That drove up costs and made it harder to turn a profit.

DuBois thinks the company is hanging onto the digital operations that are most compatible with its traditional business of storing paper documents — business units that can be revamped for improved efficiency. “They may be able to make infrastructure changes to improve their margins and reduce their costs,’’ DuBois said.

The deal with Autonomy meets one key demand made by Elliott Associates. The investors also urged the company’s managers to reorganize Iron Mountain as a real estate investment trust, or REIT, a business structure that can sharply reduce corporate tax liability and direct more of the company’s earnings directly to shareholders. Reese has promised to consider a REIT conversion, but the company made no comment on the matter yesterday.

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