Stock Scandal Has Mercury Falling

Mercury Interactive is a potential acquisition target for a short list of large companies, many observers believe.

Mercury Interactive Corp., the 800-pound gorilla in software testing, became a roughly $2 billion weakling last week when the companys CEO and two top executives resigned amid a stock options scandal.

With the resignation of chairman and CEO Amnon Landan and the potential for the company to be delisted if it doesnt meet a Nov. 30 deadline for restating its earnings, Mercurys stock at one point last week had lost 31 percent of its value.

That makes it a potential acquisition target for a short list of large companies, many observers believe.

"CA [Computer Associates International Inc.], IBM, HP [Hewlett-Packard Co.], BMC [Software Inc.], Symantec [Corp.], EMC [Corp.] and Oracle [Corp.], or SAP [AG] if they wanted to get into the development and operations side—they have the financial wherewithal," said Ray Paquet, an analyst at Gartner Inc., in Lowell, Mass.

"With a market capitalization of $2 billion, not everyone can write those kinds of checks."

How well that would sit with Mercurys customers depends on who the acquirer would be.

/zimages/6/28571.gifClick here to read more about Mercurys plans for integrated application testing, change and performance management software.

"If Microsoft [Corp.] or Oracle acquired them, no problem," said Mercury user David Pinkus, senior director of software at Apollo Group Inc., in Phoenix.

"But it doesnt materially change anything. Consolidation is constantly happening. It would be a self-operating unit for some time to come."

Mercury last week picked Chief Operating Officer Tony Zingale to take the helm. Mercurys board also named David Murphy to replace Chief Financial Officer Douglas Smith, and it elected board member Dr. Giora Yaron as chairman.

The company did not name a replacement for General Counsel Susan Skaer, who also resigned.

A special committee of Mercurys board was formed earlier this year to investigate stock-option-granting practices at Mercury as a result of a Securities and Exchange Commission inquiry.

The committee found on many occasions that the date that options were granted was different from the date intended.

All three individuals who resigned participated in those activities and benefited from them.

Mercury intends to remain independent and does not see itself as a weak company, according to Christopher Lochhead, chief marketing officer for the Mountain View, Calif., company.

"Our intention is to build a very large, very successful stand-alone enterprise software company," Lochhead said. "We have $1.3 billion in cash, and we have a dominant market share lead."

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