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3/24/2006
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Updated: Check Point And Sourcefire Scrap Acquisition Amidst Scrutiny

Israel-based Check Point will have to seek other business partners to add intrusion detection to its product lineup.

Politics and technology collided Thursday as Israeli network security provider Check Point Software Technologies Ltd. dropped its plans to acquire Maryland-based Sourcefire Inc., which employs the creator of the Snort open-source intrusion prevention and detection technology. Although the companies announced the proposed $225 million acquisition in October, the deal had come under intense scrutiny from the Committee on Foreign Investment in the United States, or CFIUS, an inter-agency committee chaired by the Treasury Secretary.

Check Point's decision to abandon its effort to buy Sourcefire smacks of the same kind of political pressure that scuttled the Dubai Ports World of United Arab Emirates' plans to take over the operation of terminals at six major U.S. ports. Dubai Ports World was scheduled to do this on March 2 but ultimately decided to transfer those operations to a U.S. entity after the deal was postponed at the behest of Congress so that CFIUS could conduct a 45-day review. Dubai Ports World dropped its bid on March 9, prior to the conclusion of CFIUS's review.

Neither move is good for business particularly because so much business is conducted on a global level today, says one analyst. "It's important that the government do due diligence, but these decisions were motivated more by politics than security," says Thom Rubel, a former VP of government strategies with Meta Group. "I'm not sure this is a good business decision, but I don't blame Check Point for giving up. It would take a tremendous amount of work for them to prove this wouldn't create a security threat."

Check Point and Sourcefire withdrew their CFIUS application after determining that it would be "more effective to create a customer focused business partnership," Check Point said in a statement. "Given the complex technology, the complexity of the process, the current scrutiny of CFIUS, we have come to the conclusion that it may be simpler and better to pursue other partnership alternatives or take more time to work with the government." The companies have the right to continue to pursue the acquisition, although it seems unlikely this will happen.

In its statement, Check Point was careful to point out that, although it is incorporated in Israel, most of its 1,400 employees work outside that country, with about 600 in the U.S. and more than 200 in Europe and Asia. "Check Point is not owned or influenced by any government and never was," the company states.

The scrapped deal means Check Point will have to continue to partner with other technology providers in order to include intrusion-prevention and intrusion-detection systems as part of its product portfolio, unless it plans to look elsewhere for an acquisition. Check Point's move to withdraw its proposal before CFIUS does not prevent the company from pursuing other U.S. acquisitions.

Sourcefire was a prime target for Check Point thanks to the work of its founder Martin Roesch, who developed Snort. The open-source program has been downloaded more than 2 million times and has more than 100,000 users worldwide, according to Sourcefire's Web site. One aspect overlooked in the scrutiny over who has control of Snort is that the technology is open source, which means it's globally developed anyway.

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