Purchase by Israeli Firm Called Off

By Ellen McCarthy
Washington Post Staff Writer
Friday, March 24, 2006

The acquisition of a Columbia software firm by an Israeli company was scuttled last night in the face of close scrutiny by a government panel investigating the transaction's national security implications.

Sourcefire Inc., a 140-person network security company whose clients include U.S. intelligence agencies, agreed in early October to be bought by Check Point Software Technologies Ltd. for $225 million, but the companies called off the deal yesterday as the deadline loomed for the Committee on Foreign Investment in the United States to issue its findings on the proposed acquisition.

The companies would not comment publicly on the specifics of the investigation but said they were ending the transaction because of the complexity of the CFIUS process.

"We've gone through the whole process hoping it would be approved, but at this point, we're happy to bring the issue to closure," said Michelle Perry, Sourcefire's chief marketing officer. She added that the companies withdrew their request for approval after "carefully considering the complications of the CFIUS process, the lengthy ongoing delays and the current climate for international acquisitions."

CFIUS is a panel with representatives from 12 agencies, including the Defense, Treasury and Homeland Security departments. It reviews foreign purchases of U.S. companies for possible national-security problems. The process is notoriously secretive, and executives of the companies involved are often not informed about which aspects of a deal may be raising national security concerns.

Most recently, the panel approved the purchase of a British firm that manages terminal operations at six U.S. ports by a company from the United Arab Emirates. But the acquisition of Peninsular and Oriental Steam Navigation Co. by Dubai Ports World provoked a firestorm of controversy, and Dubai Ports World agreed to eventually sell off the U.S. operations it had acquired to an American company.

Check Point announced Feb. 13 that its bid to acquire Sourcefire had been elevated to a more serious investigative stage under the CFIUS review process. CFIUS, which is led by the Treasury Department, has 45 days after the start of a full-blown national security review to approve a deal or refer it to the White House for final approval or rejection.

Tony Fratto, a Treasury Department spokesman, said last night that he could not speculate on whether the deal would have been approved before the official deadline for a CFIUS decision. Three weeks ago, Fratto said that "certain members of the committee have outstanding concerns that there's potential risks to national security were the transaction to proceed."

Check Point, which is traded on the Nasdaq Stock Market and has U.S. headquarters in Redwood City, Calif., said in a statement last night that the "timing for this acquisition may have been bad and given the respective technologies it became complex." The company, based in Ramat Gan, Israel, and founded by Israeli tech pioneer Gil Schwed, sells a widely used network firewall system.

Sourcefire, a privately held company, was founded in 2001 by Martin Roesch. Its basic product, Snort, was originally developed in an open-source forum that enables computer programmers from around the world to see software code and modify it though the Internet. An advanced version of the product, which protects networks from viruses and attacks, was eventually privatized and sold commercially.

Last year, the company -- which is well-known in Washington technology circles -- brought in more than $30 million in revenue. Government clients, including the Defense Department, make up about 13 percent of that revenue, according to Wayne Jackson, Sourcefire's chief executive.

Sourcefire is watched particularly closely in the Washington area because it has a number of local investors, including Core Capital Partners LP of the District, New Enterprise Associates of Baltimore, and the Maryland Department of Business and Economic Development. Perry said the company had not sought out an acquisition when Check Point approached the firm with an offer.

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