California-based Blue Coat Systems Inc., which prides itself on keeping "good" employees from doing "bad" things on the Internet, said Monday it has signed an agreement to acquire Draper-based Cerberian.
Total cost of the acquisition will amount to $17.5 million in Blue Coat stock, which saw its value drop almost 12 percent Monday.
The number of shares issued will be based on the average closing price of Blue Coat stock over a 20-day trading period ending on a trading day three days prior to closing. The closing date is expected to occur in roughly 60 days.
In a conference call on Monday, Brian NeSmith, chief executive officer of Blue Coat, said he was impressed by Cerberian's technology.
"One thing that we found to be very exciting about their technology was not simply the database that they had created — which was the list of URLs and categories associated with it — but some automated mechanisms for adding to that list of URLs," NeSmith said. "We think this offers a degree of flexibility that is going to be unique in the marketplace."
Cerberian specializes in Internet content filtering for businesses, government agencies, schools, libraries and homes.
Matt Mosman, chief executive officer of Cerberian, told the Deseret Morning News that Cerberian's technology was developed in Draper by company employees.
"I know they're tremendously impressed with our technology and with our technical people," Mosman said. "We're the one filtering company that doesn't give up when you've requested something and it's not in our database.
Cerberian's database includes 5 million URLs, Mosman said, covering about 1 billion Web pages.
A URL is the World Wide Web address of a site on the Internet.
Unlike other Internet filtering sites, Cerberian's technology initiates a quick scan of pages called up by subscribers not contained within its database. An objectionable site will be identified and then categorized.
With some pointing to roughly 30,000 new pornography pages springing up on the Internet each day, Mosman said, and 40 percent of all Internet activity during work hours classified as non-work related, Cerberian's technology has gained broad appeal since the privately held company was founded in 2000.
"The Web is a dynamic place," NeSmith said. "New Web sites are coming online all the time. . . . Cerberian had a service-oriented model which allowed them to automatically categorize URLs using software technology as opposed to using people to create those categories."
Bob Verheecke, chief financial officer of Blue Coat, said the acquisition should not impact first-quarter 2005 results but would affect subsequent quarters in increased operating expenses of about $400,000 due to costs of retaining some of Cerberian's employees.
"Cerberian currently has about 25 employees," Verheecke said, "and we anticipate keeping the majority of them, mainly in the areas of engineering and operation."
Verheecke said Cerberian's filtering service is provided from several data centers around the world.
"The costs of running these data centers will be included in our costs of goods sold," he said. "We anticipate that the initial ongoing costs will be about $200,000 per quarter."
Shares of Blue Coat closed down $2.71 at $20.28 on Nasdaq.
E-mail: danderton@desnews.com