By Liana Baker
NEW YORK (Reuters) - Hewlett-Packard Co announced a deal to buy security software firm ArcSight Inc for $1.5 billion in a bid by the world's top personal computer maker to cash in on growing demand for security technology.
The transaction would mark HP's second big acquisition since the departure of CEO Mark Hurd following a sexual harassment probe in August. The deal follows HP's winning of a bidding war against Dell Inc for data storage company 3PAR Inc.
HP said it will pay $43.50 per share in cash for ArcSight, representing a 24 percent premium to its closing price last Friday.
ArcSight shares rose 25 percent to $43.90 in morning trading, with some analysts saying a rival bid was possible. The stock has risen 56 percent since The Wall Street Journal reported on August 26 that ArcSight had put itself up for sale and could be bought by the likes of HP, IBM or Oracle Corp.
"It wouldn't be surprising" Michael Holt, a Morningstar analyst, said about the likelihood of a rival bid. He said ArcSight could fit in a number of "tech titan" portfolios, including Dell.
Cupertino, California-based ArcSight develops software that protects corporate networks from security threats. It serves customers including utilities, government agencies as well as financial services and telecommunications providers.
The deal is the latest in a rash of consolidation in the security technology sector. Last month, Intel Corp agreed to buy McAfee Inc for $7.7 billion. In May, Symantec Corp bought Verisign Inc's payment authentication unit for about $1.3 billion.
HP said on a conference call that buying ArcSight would not materially hurt its earnings per share in fiscal 2011.
Some analysts on the call questioned executives about the high premiums for both ArcSight and 3PAR, both companies beyond HP's core computing business, especially after the departure of Hurd.
HP executives said there was no change to their acquisition strategy and that the company was comfortable with its balance sheet and ability to generate cash.
Hurd left HP after he was accused of falsifying expense reports and concealing a relationship with a female contractor. He has been appointed co-president of Oracle.
HP said it sees the ArcSight deal closing by year-end.
ArcSight's biggest shareholders are Fidelity management which has a stake of almost 15 percent, and Kleiner, Perkins, Caufield & Byers, which has a nearly 11 pct stake, according to Thomson Reuters data.
ArcSight shares were up $8.83 or 25 percent at $43.93 on Nasdaq after the news. Shares in HP were up 7 cents to $38.27 in morning trade on the New York Stock Exchange.
(Additional reporting by Sinead Carew and Jennifer Saba in New York and Sayantani Ghosh in Bangalore)
(Reporting by Liana Baker, editing by Dave Zimmerman)
