* Deal to close in second half of 2014
* Acquisition to hurt Palo Alto's profit in 2014, 2015 -
* Shares fall as much as 7 pct
(Adds analysts' comments; updates shares)
By Soham Chatterjee and Jim Finkle
March 24 Palo Alto Networks Inc, which
makes firewalls to protect companies from cyber attacks, said it
would buy a tiny Israeli security firm, Cyvera, for about $200
million in a move that some analysts expect will crimp profits
over the next few years.
Palo Alto's shares fell as much as 7 percent in late morning
FBN Securities analyst Shebly Seyrafi estimated that the
deal would lower Palo Alto's profit by about 10 percent in 2014
and by about 20 percent in 2015.
Seyrafi, however, kept his "outperform" rating on the
company's stock, saying the acquisition of the early-stage
Cyvera was Palo Alto's "investment in the future."
Cyvera's software protects businesses from cyber threats by
blocking unknown, zero-day attacks on computers running
Microsoft Corp's Windows software, including ATMs and
Palo Alto Chief Executive Mark McLaughlin told Reuters that
the company planned to add technology to fight attacks on Apple
Inc's Mac computers, and mobile devices such as those
running on the iOS and Google Inc's Android operating
Cyvera currently has about six customers, according to
Zero-day cyber attacks exploit a vulnerability in computer
systems and networks known only to the attacker.
FBR Capital Markets analyst Daniel Ives said he viewed the
deal "as a very smart acquisition that could significantly
expand their (Palo Alto's) total addressable market opportunity
in cyber security."
Seyrafi estimated that the deal would increase Palo Alto's
total addressable market by about a quarter to $20 billion.
Ives said he saw the space as an "arms race" as cyber
security players such as Palo Alto, Check Point Software
Technologies Ltd and FireEye Inc are all in
the process of building out their product wings.
The deal is Palo Alto's second acquisition after it bought
privately held Morta Security Inc, which was founded by former
National Security Agency officials, in January. (r.reuters.com/zuf87v)
Palo Alto's rival FireEye bought cyber forensics and
security software firm Mandiant Corp for about $1 billion in
The growing threat of online crime has increased demand for
cybersecurity products as companies are no longer relying solely
on anti-virus software to protect their networks.
FireEye said last month that it would start selling
intrusion prevention systems, which help companies detect
attacks that breach their firewalls, by the middle of this year.
Palo Alto will pay about $88 million in cash and $112
million in stock for Cyvera.
The deal is expected to close in the second half of its
fiscal year 2014, Palo Alto said.
Tel Aviv-based Cyvera has 55 employees. Palo Alto, which had
1,375 employees as of Jan. 31, ended the quarter with $501
million in cash and cash equivalents, and no debt.
Palo Alto's shares were down 4.6 percent at $73.06 on the
New York Stock Exchange in noon trading.
The stock had gained 44 percent between July 2012, when the
company went public, and Friday's close.
(Reporting by Soham Chatterjee in Bangalore and Jim Finkle in
Boston; Editing by Kirti Pandey)