HP to acquire Peregrine Systems for $425 million

Hewlett-Packard Co. (HP) is to acquire IT asset and service management software vendor Peregrine Systems Inc. in a cash deal for US$425 million, the two companies announced Monday. By integrating Peregrine’s products into its HP OpenView systems management suite, HP hopes to position itself as one of the market leaders in asset management software.

The deal is subject to the approval of Peregrine shareholders and regulators and values Peregrine at $26.08 per share. The HP offer amounts to a $6.98 premium over the closing price of company shares Friday (ticker symbol: PRGN.PK). In trading late Monday morning, Peregrine shares jumped by $6.30 on the news.

HP expects to close the deal no later than the first quarter of 2006, according to a company release.

“The timing was right to pursue Peregrine,” said Todd DeLaughter, vice president and general manager of HP’s management software business, in a phone interview. “As part of the build out of our Adaptive Enterprise strategy, one key category we wanted to cover was asset management.”

With Peregrine’s AssetManager software, “We’re clearly putting the keys to the IT safe firmly back in the hands of the CIO,” so chief information officers can keep a close eye on asset management within their organizations, he added.

Founded in 1981, Peregrine is based in San Diego and has offices elsewhere in the U.S. as well as in Canada and Brazil and in a number of locations Europe and in Asia-Pacific. Peregrine employs around 700 staff and its customers include Cingular Wireless LLC, Circuit City Stores Inc. and Credit Suisse Group, according to information on the company’s Web site.

Peregrine has had a troubled financial past. The company filed for Chapter 11 bankruptcy in September 2002 after accounting irregularities surfaced leading to an investigation by the U.S. Securities and Exchange Commission (SEC). The irregularities eventually totaled $250 million.

In order to cut costs during 2002, Peregrine halved its staff, closed offices and sold off its Remedy service management business to BMC Software Inc. Peregrine emerged from Chapter 11 in August 2003 and has been playing catch-up with restating its SEC financial filings ever since. Eight former Peregrine executives were indicted in October 2004 by a federal grand jury charged with conspiracy to commit a multibillion-dollar securities fraud from March 1999 through May 2002.

DeLaughter noted that HP has been monitoring Peregrine’s financial status closely for some time. “We’ve confirmed there’s no unknown risk” in acquiring Peregrine, he said, while adding that some mechanisms in relation to the firm’s restating of its financials are still ongoing.

Given a long-standing close relationship with IBM Corp., the Armonk, New York, company might have seemed the more likely buyer of Peregrine.

However, HP’s DeLaughter downplayed a June expansion of a strategic alliance between IBM and Peregrine as simply renewing an existing agreement between the two. “Our intention is to support IBM customers and IBM Global Services,” he said. “Going forward, we’ll use HP’s own services arm” to provide support to those customers.

There is some overlap between HP’s and Peregrine’s service management software offerings, according to DeLaughter. HP has a road map to put in place once the deal is approved to merge Peregrine’s ServiceCenter with ServiceDesk products and any related software in development at Peregrine over the coming 12 months to 18 months, he said.

Since HP has relied on “an assortment of partners” in the asset management space to date, there’s no product overlap with Peregrine’s AssetManager, DeLaughter said. AssetManager will form the basis for HP’s asset management strategy going forward, he added.

DeLaughter sees only a 20 percent to 25 percent overlap between the companies’ customers on the service management side and none on the asset management side. “There’s a tremendous opportunity to do cross-selling,” he said.

HP is hoping that the majority of Peregrine staff come over to HP, particularly those in product development and sales and marketing functions, DeLaughter said. “Peregrine has a lot of depth and talent at the management level,” he added. “We’d like to bring on as many of them as we can.”

HP also announced Monday that it has signed a definitive agreement to acquire AppIQ Inc., a provider of SAN (storage area network) management software. HP declined to put a dollar figure on the purchase. The deal is expected to close within 45 days, according to an HP release, when HP will fold the AppIQ business into its StorageWorks division.

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