Citrix to Buy NetScaler for $300M

Web traffic management specialist NetScaler Inc. is being acquired for $300 million in cash and stock by enterprise access systems vendor Citrix Systems Inc. (Nasdaq: CTXS).

Citrix is adding NetScaler to its November purchase of SSL VPN and VOIP gateway firm Net6 Inc., now the Citrix Gateways division (see Citrix Buys SSL Vendor Net6).

Industry watchers had been expecting acquisition activity in this sector, but Cisco Systems Inc. (Nasdaq: CSCO), rather than Citrix, had been identified as the most likely player to make the next M&A move in the traffic management/WAN optimization sector -- following the recent burst of acquisition activity by its chief rival, Juniper Networks Inc. (Nasdaq: JNPR). (See Juniper Takes Two: Peribit & Redline and Cisco Prowling WAN Optimization?.)

So what is Citrix getting for its money? A much deployed and well regarded technology -- a device that bundles SSL VPN, compression, and load balancing features in one box -- that's used by more than 500 companies, including some of the world's leading online brands. (See NetScaler Passes Customer Milestone, Dow Jones Picks NetScaler, NetScaler Optimizes Google, and Shocking Results in LR's SSL VPN Test.) NetScaler estimates that up to 75 percent of Internet users go through one of its systems each day.

That pedigree put NetScaler in Light Reading's Top Ten Private Companies and put it on the shortlist in the Best New Product category of the 2004 Leading Lights awards (see Leading Lights Awards Finalists).

The deal, expected to close in the third quarter of this year, is valued at $300 million, plus "the assumption of approximately $23 million in unvested stock options," according to Citrix. The value comprises $135 million in cash and $165 million in stock. Citrix's share price closed Wednesday at $25.37, valuing the company at $4.3 billion.

Citrix estimates the acquisition will add between $5 million and $6 million in revenue in the quarter ending September 30, and between $10 million and $12 million in the final three months of this year.

Citrix also expects the deal to be dilutive to its earnings per share (EPS) in both quarters to the tune of between 2 and 3 cents on an adjusted basis. On a GAAP basis, it's likely to be dilutive by 6 cents or 7 cents in the third quarter, and by 5 cents to 6 cents in the fourth quarter.

Citrix also expects to record an expense charge of between $5 million and $6 million for in-process research and development in the third quarter.

In a prepared statement, Citrix CEO Mark Templeton stated the acquisition is part of the "strategy we outlined in early 2003 to expand into high-growth markets adjacent to the access infrastructure market through building and acquiring best-of-breed access infrastructure technologies."

The company says the integration of NetScaler's technology will boost the performance of its Presentation Server systems and lower costs for companies using Web-based services.

— Ray Le Maistre, International News Editor, Light Reading