Friday, April 27, 2007

Websense Makes Big Promises

Websense (NasdaqGS:WBSN) announced their offer to acquire Surfcontrol (LSE:SRF) at a substantial premium. The press release quotes Gene Hodges CEO of Websense as saying that with new operational efficiencies they hope to bring operating margins back to traditional levels that Websense had been accustomed to. This means that their will be some slash and burn within the mothership as duplicated functions are eliminated. Standard talk to justify an acquisition.

At the same time they are claiming that existing customers of Surfcontrol will have the best of all worlds. Read this quote from Gene Hodges:

We plan to introduce a customer satisfaction and retention program and pledge to support SurfControl's layered software Web security solutions at least through 2010. We also plan to enhance these products with data from the merged research databases of the two companies. We also plan to renew existing SurfControl subscriptions at competitive levels, similar to their historical prices. Channel partners are expected to benefit from the opportunity to offer a broader set of solutions to their customers, backed by the threat research capabilities and financial strength of Websense."

What does competitive levels and historical prices mean? How will this return Websense margins to historical levels? Management feels the deal will be dilutive for one quarter and then accretive. Sounds like they have locked themselves into some problems which will come home to roost very soon.

The dead giveaway in this press release is when management from source inserts an editors summary in bold block letters hoping that overworked deadline challenged editors do not delve into the full text and start asking some questions.

I am not saying its a bad deal. I am saying that Gene Hodges made some very big promises that may be very hard to keep. Good Luck to Websense.