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VeriSign-Symantec Deal Gets (Mostly) Favorable Reviews

Analysts are busy today digesting the meaning of the Symantec (SYMC)-VeriSign (VRSN) deal announced last night, in which Symentec agreed to acquire VeriSign’s authentication services business for $1.28 billion in cash. VeriSign is giving up significant revenue but hoping to expand its operating margins through the deal, while Symantec looks to generate synergies with its existing portfolio by becoming a bigger player in the online authentication and identity protection arena.

Deutsche Bank analyst Todd Raker reverses his opinion on Verisign and Symantec, in the wake of the deal. He upgrades VeriSign shares to Buy from Hold and raises his price target to $35 from $25, thanks to a more attractive margin profile. While the divested security business represented some 40% of VeriSign revenue, he notes that the business is growing much slower than its core registry unit.

Meanwhile, Raker lowers Symantec shares to Hold from Buy and lowers his price target to 17.50 from $21. He writes: “We have concerns on VeriSign’s (Hold, $27.99) SSL [security]business and with Symantec’s mixed track record on acquisition integration, we think the risk profile for Symantec has increased.”

The rest of Wall Street is generally more favorable on the deal for both sides. Here are highlights of the deal reaction, first from from the VeriSign perspective:

Pacific Crest’s Rob Owens, lifts his price target on VeriSign to $34 from $31 and keeps an Outperform rating. “The transaction effectively refines VeriSign’s business down to its core registry asset, which is the most compelling part of the company,” Owens writes. He now sees growth of 8% to 11%, up from 5% to 7%, with operating margins moving into the mid 40s.

Jefferies’ Katherine Egbert writes that what remains of VeriSign might now be better positioned for a management buyout, leveraged buyout or outright sale. She maintains a Hold rating and $26 price target.

Standard & Poor’s Scott Kessler today reiterates a Sell rating on VeriSign and noted surprise about the deal given the company’s suggestions that its divestiture process wrapped up in 2009. “While we think the deal would improve some aspects of VeriSign’s financials, we also see negatives related to revenues, growth opportunities, transition costs, and risk,” Kessler writes.

Credit Suisse’s Philip Winslow raises his price target to $40 from $35 on VeriSign shares and keeps an Outperform rating. He says operating margins could reach 52.1% by 2011 as a result of the divestiture.

Lazard Capital Markets’ Joel Fishbein ups his VeriSign price target to $33 from $29 and reiterates a Buy rating. “The company can now focus on optimizing its highly profitable naming business, and allow Symantec to leverage its leading position in the security market to extract more value out of the security business,” he writes in a note today.
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