Company could be appealing takeover target, analysts say
Veritas Software lost more than a third of its market value Tuesday after the company warned of an earnings shortfall that amplified investors' recent disenchantment with management.
Veritas expects to post earnings ranging from 17 cents to 19 cents per share for the quarter ended in June, missing a target of 21 cents to 23 cents set three weeks ago by the business software maker. The company anticipates revenue of $485 million to $495 million, below its previous estimate of $490 million to $505 million.
The disappointing performance rankled investors still agitated about a recent revelation of accounting abuses that forced Veritas to restate its results for the past three years.
Veritas's shares plunged $9.55, or 36 percent, to close Tuesday at $17 on the Nasdaq Stock Market. The sharp descent translated into a one-day loss of $4.1 billion in shareholder wealth, continuing an unsettling trend. Veritas's stock has dropped by 54 percent so far this year.
CEO Gary Bloom blamed the second-quarter trouble on flagging sales to U.S. businesses that use the company's software to help manage and store data. The drop-off occurred during the quarter's final weeks -- the busiest sales period for most software makers.
Investors might have been more forgiving if not for a series of unpleasant surprises since Bloom took command of Mountain View, Calif.-based Veritas in late 2000, industry analysts said.
"The stock price reflects some diminished trust in the management team," said RBC Capital Markets analyst Tom Curlin.
The skepticism has been building since Veritas disclosed in March that an internal investigation had uncovered improper accounting for some revenue and expenses from 2001 through 2003. The problems prompted Veritas to restate its results, decreasing revenue for the past three years by a combined $28 million and erasing a combined $15 million in profit.
It marked the second time in two years that Veritas had restated its results. In March 2003, the company revised its results for 2000 and 2001 to account for a $20 million reduction in its revenue and expenses.
Most of the accounting abuses occurred under the watch of Kenneth E. Lochnar, who rattled investors by resigning as Veritas's chief financial officer in October 2002 after Bloom discovered that he had fabricated a master's degree on his resume.
Even as investor confidence in the company has sagged, Veritas has continued to grow. The company's revenue this year is expected to approach $2 billion, ranking it among the world's 10 largest software makers.
But Veritas also is facing tougher competition, particularly from EMC, said analyst Daniel Renouard of Robert W. Baird and Co. EMC became a more imposing rival through its $1.4 billion acquisition of Legato Systems.
With its stock down, Veritas could become a more appealing takeover target, analysts said.
Curlin said Veritas would be a good fit for Oracle, which has assured investors it will complete at least one major acquisition during the next year, even if its current $7.7 billion bid for PeopleSoft is rebuffed.
Bloom was a top Oracle executive before taking the Veritas job. Oracle didn't identify Veritas on a shopping list of eight takeover candidates drawn up in April 2003.
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