Symantec Contemplating Sale of Its Information Management Business

SYMC: Symantec Corp logo
SYMC
Symantec Corp

Global security software major Symantec Corp. (NYSE: SYMC) is reportedly considering the sale of its information management business, which it recently christened as Veritas Technology Corp. [1] Symantec is said to have been seeking a buyer  for data storage and recovery business for several months  and has approached NetApp (NYSE: NTAP), EMC (NYSE: EMC) and several private equity firms for a potential deal. [2]

Following reports of the potential sale of the information management business, Symantec’s shares jumped by nearly 8% to an intra-day high of $26.15 on April 10. However, its shares fell back to $24.14 by April 13 amid taxation concerns related to divestment of the business through a sale.

We have a price estimate of $25 for Symantec, which is nearly the same as its current market price.

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See our complete analysis for Symantec here

Veritas Split-Off Still on Track

Symantec has refused to confirm the rumored sale of the Veritas business, but reaffirmed that the plan to split it off into a separate company is still on track. [3] The company had announced last October that it will split its information management business into a publicly traded company, allowing it to focus solely on its security software business.

The strategy makes sense, because taxes resulting from the sale of Veritas could be a potential obstacle in such a transaction. On the other hand, the planned split-off is a tax-free transaction, which makes it a viable alternative if a sale does not come to fruition.

Whether Through Sale or Split, Veritas Needs to Go

The Veritas business could reportedly fetch over $8 billion in sale. In comparison, Symantec paid $13.5 billion in 2005 to acquire Veritas in an all-stock transaction. The fact that Symantec is willing to dispose its information management business for a loss speaks volumes about how poorly the 2005 acquisition has panned out for the company.

Symantec’s revenues from the information management segment have contracted from $2.6 billion in 2012 to $2.5 billion in 2014. This is because smaller competitors like CommVault have made inroads into the information management market, which has eaten into Symantec’s market share. On the other hand, market leader EMC has maintained its dominant position in the industry, putting further pressure on Symantec’s Veritas brand.

Perhaps more importantly, the EBITDA margin of the information management business has shrunk by 8 percentage points in two years, and stood at 23% in 2014. This is because sales of Symantec’s low-margin products have grown faster than its high-margin ones, resulting in an unfavorable product mix from a bottom-line perspective.

The combination of shrinking market share and lower margins have turned the Veritas business into a burden on the company overall in recent years. Therefore, as we previously postulated (Read: Symantec’s Revival: The Security Business Holds the Key), Symantec’s future lies in the security software business, which still holds considerable potential for the company.

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Notes:
  1. Symantec Exploring a Sale of Its Veritas Business, The Wall Street Journal, April 10, 2015 []
  2. Symantec has been exploring Veritas sale for months: sources, Reuters, April 10, 2015 []
  3. Symantec maintains its plans to split from Veritas, SC Magazine, April 13, 2015 []