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Legato shareholders try to stop EMC deal

Legato Systems was served with a pair of lawsuits Wednesday to prevent the company from selling itself to EMC for $1.3 billion. Is anything ever simple?

The words "acquisition" and "lawsuit" seem to go hand in hand in the IT industry. One needs to look no further than Hewlett-Packard Co.'s hotly contested acquisition of Compaq to see that.

So it's no surprise that shareholders of Legato Systems Inc. have filed a pair of lawsuits to stop EMC Corp. from buying the software maker. But fierce opposition wasn't enough to nix the HP/Compaq deal and, according to analysts, it doesn't appear that this lawsuit will be enough to stop the EMC/Legato acquisition from become a reality either.

Legato, Mountain View, Calif., announced Wednesday that it has been served with two lawsuits filed against the company and its board of directors in connection with the recently announced agreement that EMC, Hopkinton, Mass., would acquire Legato.

The two suits were both filed in Santa Clara County Superior Court, and both claim "breach of fiduciary duty and self-dealing" against the defendants.

Both suits seek to prevent the transaction and force Legato to pursue other options that would be "in the interests of shareholders."

The experts view EMC's proposed acquisition of Legato as a win-win situation. "We cannot imagine a scenario for Legato that could be much better than this deal," said Tony Prigmore, a senior analyst with Enterprise Storage Group Inc., Milford, Mass.

Prigmore said you can't please everybody all of the time and that the lawsuits will most likely fall by the wayside. "It's very hard to have perfectly aligned shareholder interests, however we do not expect an [HP/Compaq] type of debacle here," he said.

Noah D. Mesel, vice president and general counsel for Legato, issued a statement saying, "We believe the allegations in these suits are meritless and will defend the company and the individual defendants vigorously."

Legato said it has retained the Palo Alto, Calif., law firm Wilson Sonsini Goodrich & Rosati to represent the defendants.

An EMC spokesman declined to comment on the matter.

The deal

EMC announced plans to acquire backup and archiving specialist Legato last week. The all-stock deal has been valued at approximately $1.3 billion.

Joe Tucci, EMC's president and CEO, said that EMC's choice was either to develop software in house or buy the technology from an existing vendor.

"EMC will get the benefits of Legato's best practices and receive a healthy dose of new software DNA," he said.

Legato's products include NetWorker, DiskXtender, AlphaStor, ApplicationXtender, EmailXtender AppPanel, Co-StandbyServer AAdvanced, AAM and RepliStor. NetWorker will become EMC's primary backup and recovery offering.

EMC will support Legato's products and existing customers. It plans to maintain the Legato brand as a separate entity and integrate functionality from its own software line. EMC will eventually be dropping its Enterprise Data Manager (EDM) product in favor of Legato's data management offerings, the company said.

EMC also plans to use Legato's sales organization, channel partner relationships, service capabilities and 450 software engineers to solidify its position atop the storage market.

EMC will operate Legato as a software division based in Mountain View, Calif. David Wright, Legato's chairman and CEO, will lead the Legato business unit within EMC as an executive vice president.

Legato's sales, marketing and service will remain focused on selling and servicing the full line of Legato products. EMC said the companies will fuse their respective engineering and development efforts.


Let us know what you think about the story. E-mailKevin Komiega, News Writer

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