Cisco acquires Wheelgroup: Beefing up network security

Electronic News, Feb 23, 1998 by Cynthia Bournellis

San Jose, Calif.--Cisco Systems has signed a definitive agreement to acquire privately-held WheelGroup Corp. of San Antonio, Texas. WheelGroup is a developer of network security software products in the areas such as intrusion detection and security scanning. Under the terms of the acquisition, between 1.8 and 2.0 million shares of Cisco common stock will be exchanged for the outstanding shares and options of WheelGroup. Based upon Cisco's February 18 closing price of $65.50, the stock exchanged would have a value of approximately $124 million.

Wheelgroup has two products it sells to Fortune 500 customers. Shipping for about 18 months is the company's NetRanger product. It works like a burglar alarm on a network, acting as a radar-like intrusion detection system that operates with network routers and switches as real-time sensors to identify and respond to unauthorized intrusions and computer hackers.

In connection with the acquisition, Cisco expects a one-time charge against after-tax earnings of between $.08 and $.13 cents per share for purchased-in-process research and development expenses in the third quarter of fiscal 1998. The acquisition is expected to be completed by mid-March subject to various closing conditions. Cisco said the acquisition should extend the company's position as a provider of end-to-end network security products and help create a more secure way for customers to do business on the Internet.

Wheelgroup's technology is a radar-like intrusion detection system that operates with network routers and switches as real-time sensors to identify and respond to unauthorized intrusions and hackers. The scanning technology identifies network security gaps throughout the enterprise and offers ways to closing them. Cisco said it will refer to this new class of detection and scanning technology as "active audit," which will become the third element of Cisco's multi-phase security architecture. The first two phases, announced last year, focused on identity and integrity of the network.

Founded in 1995, WheelGroup has approximately 100 employees ---50 engineer and 25 sales and marketing people. The majority of the company's 75 employees will remain in their current offices in San Antonio. The rest will move to Cisco's facilities in either San Jose, Calif. or Raleigh, N. C.

Wheelgroup CEO and president Tony Jennings will report to Cliff Meltzer, who heads up the IOS software technology group at Cisco. Cisco will sell the standalone product called Netranger.