Zeev's Turnips Patch-No Politics (ZEEV)

[marketmaven]

BCSI- Dilutive Acquisition in Poor IT Spending Environment

Wachovia Securities (BCSI) "Reit Outperform" (seriously underperforming since January)
Blue Coat`s acquisition of Cerberian yesterday for $17.5MM in stock drove the stock down 12% (versus a flat Nasdaq), as investors focused on the near-term dilution impact, which we calculate to be roughly $0.05-$0.07 per quarter. The dilution should subside by Apr. `05, and become accretive thereafter. We view the acquisition as necessary, if painful in the short term, to help Blue Coat build out a native, comprehensive content filtering platform to address the growing proxy appliance market. Furthermore, having its own content filtering solution will ultimately reduce Blue Coat`s dependency on its primary partners Secure Computing and Websense. However, we believe the stock could experience continued volatility over the next few trading sessions as investors digest the Cerberian acquisition, the uncertainty around an impending tax rate and concerns about July qtr. results amid a softening technology spending environment.