Veritas Acquisition was Symantec’s Biggest Mistake

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And it may be one of the worst blunders in business. Ever since Symantec announced that it was going to acquire backup software maker Veritas, its stocks have tumbled, business has fallen off, key leaders have left the company, and their competitors have honed their products to compete and beat big yellow.

Now there is more bad news. Veritas owed the IRS almost a billion dollars in back taxes. Whoops! Is it too late to sell Veritas back?

From CNET here:

The U.S. Internal Revenue Service says that Symantec owes $900 million in back taxes related to its acquisition of Veritas Software, the security company said Monday.

Cupertino, Calif.-based Symantec said it strongly believes that the IRS’s positions are inconsistent with applicable tax law and existing regulations, and that it will petition the tax court to protest the assessment. The security software maker’s shares fell nearly 5 percent on the news.

Symantec said IRS claims the company owes additional taxes, plus interest and penalties, for the 2000 and 2001 tax years based on an audit of recently-acquired Veritas.

The IRS notice marks the latest bad news for Symantec, whose shares have tumbled in recent months on investor concern over a number of high-level executive departures and questions over the Veritas deal.

Its shares have dropped almost 30 percent since it closed its $10.25 billion acquisition of storage software specialist Veritas in July, in a deal aimed at meeting growing demand from customers wanting to buy from fewer vendors.

On Monday, Symantec shares fell 4.6 percent to $15.64 in after-hours trade from a Nasdaq close of $16.39.

I really think that Symantec saw that Microsoft was getting into the AV business, and they panicked. They thought that the only way to remain competitive was to diversify their services. So rather than stay focused on leading the field in security services, they shot themselves in the foot by merging with a lame company that, in retrospect, was plagued with mismanagement.

In the mean time, Computer Associates got big in PKI management and authentication services. McAfee developed superior intrusion detection systems, and better incident management tools than Symantec. And while Symantec struggles with the IRS, its competitors will be surpassing them in quality and service.