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$430 million may buy Netegrity

BOSTON — Computer Associates International Inc. will acquire Netegrity Inc. in a $430 million cash deal that will merge the computer security software makers, the companies said Wednesday.

The acquisition by Computer Associates, based in Islandia, N.Y., of Netegrity, based in Waltham, Mass., is expected to close within 90 days, subject to approval by regulators and shareholders at Netegrity, a much smaller company.

The deal comes less than a month after Computer Associates agreed to pay $225 million to its shareholders as part of a deal it made with regulators to avoid criminal prosecution for alleged securities fraud. Its former CEO, Sanjay Kumar, also was indicted on securities fraud and other charges.

Last week, Computer Associates said it was cutting about 800 positions worldwide, a 5 percent reduction in its work force.

Computer Associates executives said in a conference call with analysts that the company had put the securities investigation behind it, with expectations that the Netegrity acquisition will be neutral to its earnings in the fiscal year that started April 1, and add to profits the following year.

Executives of both companies said their products are a good fit, with Netegrity focusing more heavily on Web security and Computer Associates offering a broader range of management software to help companies run more efficiently and authenticate employee access to company networks.

"We're really very synergistic . . . with little overlap," said Russ Artzt, an executive vice president at Computer Associates.

The $430 million purchase price represents about $10.75 per common share of Netegrity's 40 million outstanding shares. The price represents about a 39 percent premium, based on the $7.75 price at which Netegrity shares closed Tuesday on the Nasdaq Stock Market.

On Wednesday, Netegrity shares surged $2.79, or 36 percent, to close at $10.54 on the Nasdaq Stock Market. Computer Associates' shares rose 46 cents, or 1.7 percent, to close at $27.85 on the New York Stock Exchange.

Shareholders holding 10 percent of outstanding Netegrity shares have agreed to vote in favor of the deal, Computer Associates said. Netegrity's operations will be integrated into Computer Associates' eTrust Identity and Access Management group, the companies said, with the majority of Netegrity's 400 employees expected to remain with Computer Associates.

Netegrity also has about $90 million in cash on hand, making Computer Associates' net cost for the company closer to $340 million.

"By adding the best Web security product on the market to its portfolio, CA significantly strengthens its leading position in identity and access management," said Kenneth Cron, who replaced Kumar as Computer Associates' chief executive in April.

Computer Associates is acquiring a company expecting mediocre results for the quarter that ended last Thursday. Netegrity on Wednesday announced preliminary third-quarter results before its Oct. 26 earnings announcement, forecasting a performance in the range of breaking even to a net loss of as much as $1 million for the quarter, on revenue ranging from $19 million to $21 million.

Including the $500,000 charge Netegrity will record for an amortization expense, the company expects to either break even or report a loss of 3 cents per share. The consensus estimate of analysts surveyed by Thomson First Call is for a per-share loss of 5 cents.

Netegrity reported revenue of $78 million for the calendar year 2003 compared with Computer Associates' $3.28 billion in revenue for the fiscal year ended March 31.