Analysts: Check Point - Sourcefire deal was doomed

US analysts: Withdrawal from the acquisition of Sourcefire was the only way for Check Point to avoid being branded a security risk.

US analysts say the Bush Administration would have vetoed the Check Point (Nasdaq: CHKP)-Sourcefire deal and that withdrawal from the acquisition was the only way for Check Point to avoid being branded a security risk.

The Committee on Foreign Investment in the US (CFIUS) reviewed the repercussions of the deal on US national security. FBI and Defense Department representatives strongly objected to a takeover by a foreign company of Sourcefire, which supplies the SNORT open source code information security software that is used by millions of users, including the Pentagon and other security agencies.

The CFIUS was to have announced its decision on March 30, but an informed source was quoted on security news portal “Security Focus” as saying that Check Point and Sourcefire expected that the committee would not approve the merger. The portal is owned by Symantec (Nasdaq: SYMC), which is a rival of Check Point, although the site editors insist that they enjoy editorial independence.

Morgan Stanley senior information security analyst Peter Cooper told “Globes” that Check Point’s response was similar to that of the many other foreign companies whose bids to buy US companies received a cool response from the CFIUS.

The CFIUS has considered 1,600 applications by foreign companies since it was founded in 1988, of which 25 were investigated in depth and only 11 were finally approved. The rest of the applications were abandoned midway once the companies concerned realized which way the wind was blowing.

According to the spokesperson at the US Department of the Treasury, which oversees the CFIUS’ proceedings, while the committee had accepted the request by Check Point and Sourcefire to withdraw their application, there was nothing to suggest that the CFIUS would have rejected it at its session on March 30.

According to Cooper, however, the CFIUS feared that the takeover of Sourcefire by Check Point would expose SNORT to manipulation by a non-US entity. He added that there were fears that Check Point would “shut down” the open source software and limit accessibility by users. Similar occurrences (unrelated to Check Point) had happened before, he insisted.

The CFIUS’s cool attitude to Check Point does not necessarily imply that the Bush Administration considered the company a security risk. It can be claimed, on the one hand, that certain officials within the administration took a dim view of the close ties between key Check Point executives and the IDF, especially unit 8200.

It is also possible, however, that Check Point was the victim of bad timing. Its initiative to acquire Sourcefire was winding its way through the labyrinth of bureaucracy in Washington just as the administration was feeling the fallout from the collapse of the move to allow United Arab Emirates port operator Dubai Ports World to gain a foothold in the US by taking over six key ports.

According to Cooper, the Bush Administration found it difficult to allow the takeover of an US company by an Israeli company that would have security repercussions, after having turned down Dubai Ports World bid to enter the US on similar grounds.

Check Point may well be perceived as victim of political circumstances beyond its control, but those who are not friends of Israel will try to use the incident to smear the company and Israel.

Published by Globes [online], Israel business news - www.globes.co.il - on March 27, 2006

© Copyright of Globes Publisher Itonut (1983) Ltd. 2006

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