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EMC to Buy Legato for $1.3 Billion
NEW YORK (Reuters) - EMC Corp. (NYSE:EMC - News), which makes computers that store data, said on Tuesday it would buy Legato Systems Inc. (NasdaqNM:LGTO - News) for $1.3 billion in stock in a deal that EMC said would expand its portfolio of storage software.

EMC dominated sales of data storage machines during the 1990s technology boom, but has since been hurt by overcapacity and falling hardware prices. It has said it was in the market for software companies to diversity its revenue sources.

"The deal allows them to widen their software platform, which has been a goal for EMC," said Friedman Billings Ramsey analyst Nitsan Hargil. "Unfortunately, they are buying software which is not considered to be industry leading. Veritas Software (NasdaqNM:VRTS - News) has that title."

Hargil said he expects EMC will have to invest substantial amounts of money and time to make Legato products into industry-leading software.

EMC rivals IBM, Hewlett-Packard and others in the market for large corporate computer servers. Legato makes software used to manage those computer systems and keep them up and running.

The stock exchange deal values Legato at about $10.57 a share, based on EMC's closing share price on Monday. The price represents a 16 percent premium over Legato's closing price of $9.10 on Monday on Nasdaq..

In pre-market trading on Instinet, Legato shares rose 12.6 percent to $10.25. EMC shares fell 4.5 percent to $11.20 from Monday's close at $11.74 on the New York Stock Exchange (News - Websites).

Under the offer, Legato shareholders would receive 0.9 EMC share for each Legato share held.

Hopkinton, Massachusetts-based EMC said it will take a charge for some of Legato's costs when the deal closes, but expected the transaction to slightly boost its diluted earnings per share in 2004.

EMC also said its second-quarter earnings will meet or beat targets.

It expects earnings of 3 cents to 4 cents per share for the quarter. Analysts polled by Thomson First Call (News - Websites) expected, on average, that EMC would earn 3 cents per share. It reported a break-even second quarter last year.

EMC said it sees consolidated revenue for the second quarter in at the high end of the $1.425 billion to $1.475 billion range it had stated earlier. The company posted revenue of $1.39 billion a year earlier.

Earlier this year, Legato hired Morgan Stanley to seek potential buyers. In February, sources told Reuters that Legato was an acquisition target for EMC..

EMC's acquisition of Legato, if approved, will add to consolidation in the software sector, amid PeopleSoft's (NasdaqNM:PSFT - News) bid for rival J.D. Edwards and Oracle's (NasdaqNM:ORCL - News) hostile counterbid for PeopleSoft.

EMC said it expected the deal to be completed in the fourth quarter of the 2003 calendar year.