Red Hat buys secure Web server maker

[William Knowles <wk () C4I ORG>]

http://www.upside.com/News/399833b00.html

by Catherine Liden Traugot
August 14, 2000

Linux distributor Red Hat (RHAT) announced today it will acquire
Oakland, Calif.-based C2Net Software Inc., a developer of the
Stronghold secure Web server, for about $42 million.

The deal gives Red Hat a foothold in the secure Web server market, of
which Stronghold claims about a 30 percent share. Stronghold's server
runs on numerous platforms, including several versions of Linux. The
company's revenues increased 46 percent, to $3.25 million last year.
C2Net customers include Amazon.com (AMZN), Ameritrade (AMTD), IBM
(IBM) and Morgan Stanley Dean Witter Online.

Durham, N.C.-based Red Hat has been thinking about adding a security
product for several months now, according to the company's chief
operating officer Tim Buckley. "It's an industry request," he said.
Red Hat settled on C2Net because of its dominant market share. The
only other company that Buckley saw as being in the same space was a
startup that had less appeal.

"This [deal] fits in with Red Hat's grand vision of where it wants
Linux to be," says Dan Kusnetzky, an analyst with International Data
Corp., noting the company's desire to have a suite of products that
run on the Linux operating system. "[Red Hat] acquires or partners
with companies that will help them get there. It makes good sense
because security is one of the foremost things in the minds of
companies running Web servers."

Stronghold is Red Hat's fifth major acquisition this year. It has
acquired Cygnus Solutions, a software, tools and services provider;
WireSpeed, which develops network and telecommunications software for
wireless phones, handheld devices and embedded applications;
Bluecurve, which makes software that measures user activity; and
Hell's Kitchen Systems, which makes e-commerce payment processing
software.

Founded six years ago, C2Net made a publicity splash when its founders
made harsh public comments about U.S. laws that forbid the export of
certain types of encryption software. Founder Sameer Parekh openly
discussed how the company skirted U.S. export restrictions with its
Anguillian subsidiary and offshore developers.

Although the laws have been eased somewhat, C2Net still develops its
software overseas, with 10 staffers in Newbury, England. The company
employs 14 in Oakland, which Red Hat says it will not relocate.

Parekh chairs C2Net's board of directors but hasn't been involved in
day-to-day activities for two years.


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