Baltimore buys Net security software group for €1.2bn

Baltimore Technologies has marked its imminent return to the FTSE-100 index with the acquisition of the British Internet security software group Content Technologies for £702.5 million sterling (€1.2 billion). Content is best known for its MIMEsweeper anti-virus product, but also produces software products to protect against Internet confidentiality breaches, exposure to e-mail legal liability and junk e-mail. Baltimore is paying for the deal by issuing 91 million shares to Content shareholders and is also planning to raise $100 million (€116 million) in new equity from European investors.

While Baltimore's products allow companies to know who they are exchanging information with, Content's products protect companies from threats to the information they are sending across the Internet.

Baltimore chief executive Mr Fran Rooney emphasised this point. "The combination of Baltimore and Content is a natural progression to further address our corporate customers."

He added that Content has been a partner for Baltimore for some time and the acquisition fitted Baltimore's plans to develop a broader base in e-security. "Data is an asset so companies have to be more protective of it," he said.

Like Baltimore, Content is at a stage where its sales are very low compared to the value of the company. Baltimore is paying more than £700 million for a company which had sales of just £16 million in the 12 months to the end of July and pre-tax losses of £4.3 million in the same period. Content claims to have a 32 per cent share of the Internet content security market - twice the share of its closest competitor. Consultant IDC has forecast the market for content security will grow annually by 71 per cent and will be worth $952 million by 2004.

The acquisition would also boost Baltimore's presence in North America, where Content generated 42 per cent of its sales in the nine months to the end of July, and would also create significant cross-selling opportunities between Baltimore's blue-chip customer base and Content's large and mid-sized customers, said Mr Rooney.

Baltimore shares initially traded up to £8.40 on the London stock market before the announcement, but then weakened to close down 12p on £7.60 - mainly in response to the extra 91 million shares being issued to Baltimore shareholders and the $100 million placing. The shares issued to Content shareholders will dilute existing Baltimore shareholders by about 18 per cent. Mr Rooney said that Baltimore used shares for this deal "because our shares are a strong currency". He added: "We have bought Content at a lower multiple to our own so we are immediately adding value."