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The Honolulu Advertiser
Posted on: Friday, March 24, 2006

Israeli software firm aborts U.S. buyout

By Ted Bridis
Associated Press

WASHINGTON A leading Israeli software company abandoned its plans yesterday to buy a smaller U.S. rival in a $225 million deal because of national security objections by the Bush administration.

Check Point Software Technologies Ltd. in Ramat Gan, Israel, formally withdrew its proposal near the conclusion of a rare, full-blown investigation by a U.S. review panel over the company's plans to buy a smaller rival, Sourcefire Inc.

Check Point had been told U.S. officials feared the transaction could endanger some of the government's most sensitive computer systems.

Lawyers for Check Point offered to attach conditions to the sale that executives believed were onerous but were intended to satisfy the concerns expressed by the review panel, the Committee on Foreign Investments in the United States, said one person familiar with the process. But no agreement could be reached.

The Treasury Department, which oversees the committee, formally accepted Check Point's request to withdraw from the review process. This ensures the panel will not be required to submit recommendations to President Bush whether to block the deal.

The committee has concluded only 25 full-blown investigations in more than 1,600 business transactions it has reviewed since 1988. In roughly half the investigations, companies pulled out of the deal rather than face imminent rejection.

George H.W. Bush is the only president ever to block a deal, stopping the sale of a Seattle aircraft parts manufacturer to China in February 1990.

The objections by the FBI and Pentagon were partly over specialized intrusion detection software known as "Snort," which guards some classified U.S. military and intelligence computers. Snort's author is a senior executive at Sourcefire, based in Columbia, Md.

The investigation was carried out by the same U.S. review panel that approved the now-abandoned ports deal involving Dubai-owned DP World.

Sourcefire said in a statement it was prepared to continue operating independently as a booming software security company.

One financial analyst said Sourcefire may limit future transactions with U.S.-based companies to avoid another security review.

"Given the CFIUS concerns, they may have to limit their potential partners," said Peter Kuper of Morgan Stanley. "A U.S. acquirer would be a lot simpler and cleaner."

Kuper said it would have been politically sensitive for the Bush administration to approve the Israeli software purchase so soon after the collapse of the ports deal involving the United Arab Emirates.

"That may have influenced this," Kuper said. "It might have been complicated from a political point of view."