EMC Cops Documentum

EMC Corp. (NYSE: EMC) has dropped the hammer on another gigantic deal in the software space: The company today announced plans to acquire Documentum Inc. (NYSE: DCTM), a provider of enterprise content management software, in a stock swap valued at around $1.7 billion (see EMC to Buy Documentum for $1.7B).

Word of the deal comes after EMC's announcement in July that it would buy backup and archiving software vendor Legato Systems Inc. (Nasdaq: LGTO) for about $1.3 billion in stock (see EMC Gobbles Legato).

Documentum, based in Pleasanton, Calif., develops content management software that allows organizations to "proactively manage their unstructured content." EMC says it plans to integrate Documentum's intelligent content management software with EMC's storage systems and data management software.

The fact that EMC was intending to make another sizeable deal was no secret. When the Legato purchase was announced, Joe Tucci, EMC's president and CEO, told reporters and analysts that Hopkinton wasn't done yet: "There are segments that we're interested in that we're looking at... I've never said where we're going to hunt... but Legato plus reasonable growth will not get us to [software representing] 30 percent [of total revenues], and that is still our target."

In statement today, Tucci said, "We believe Documentum's rich software development talent, its management strength and depth, its top-notch sales, marketing and services expertise in content management, and its blue-chip customer base will add significant strategic value as EMC continues to evolve." He also noted that EMC, Documentum, and Legato have achieved a combined total of more than $2 billion in software license and support revenues in the most recent 12-month period.By acquiring Documentum, EMC moves even further up the "information lifecycle management" stack. Whereas EMC's traditional portfolio of software -- including EMC ControlCenter -- is designed to manage devices and storage networks, Documentum's software manages the details of how companies' documents and electronic records are stored and accessed. EMC did note that it has been working with Documentum since April 2002, when EMC rolled out Centera, its content-addressed storage system that is designed to store huge amounts of "fixed content" on inexpensive hard disk drives (see EMC Centera Gains Documentum).

The companies said the acquisition is subject to customary closing conditions, including Documentum's stockholder and regulatory approvals, and is expected to be completed in the first quarter of calendar year 2004. When the deal is completed, EMC expects to take a charge in the quarter the transaction is closed for the value of Documentum's in-process research and development costs and other integration expenses.

EMC said it intends to operate Documentum as a software division of EMC and retain its headquarters in Pleasanton, led by Dave DeWalt, Documentum's current CEO. That's the same kind of arrangement that EMC has in mind for Legato, which will continue to be headed by Legato CEO David Wright.

Also today, EMC announced preliminary results for its third quarter, which ended Sept. 30. The company expects revenue to be about $1.51 billion and earnings to be $0.07 per share, including a $0.02 per share benefit resulting from "the favorable resolution of an income tax audit," EMC says (see EMC Raises Q3 Guidance).

Todd Spangler, US Editor, Byte and Switch