Wall Street Beat: IT M&A stir market before holiday

Merger deals among major IT and Internet companies this week gave technology investors a lot to mull over before the markets take a long-weekend, holiday break.

In the biggest tech acquisition of the week, in terms of dollar value, hard-disk drive maker Seagate Technology LLC announced Wednesday it will acquire Maxtor Corp. in an all-stock transaction worth about $1.9 billion. By sharing research and development costs, Seagate and Maxtor hope to expand the range of products they offer and reduce expenses, to the tune of $300 million a year. The companies warned that in the past, when two hard-disk drive makers merge, their combined revenue also drops. That did not deter investors, who apparently liked the linkup: Maxtor’s (MXO) share price jumped by $2.41 to close at $6.93, while Seagate (STX) shares rose by $0.63 to close Wednesday at $20.23.

On the network management front, IBM Corp. Wednesday announced it would buy network management software vendor Micromuse Inc. for $865 million in cash. The acquisition should strengthen IBM technology for managing mixed network traffic that includes VOIP (voice over Internet Protocol), and other online voice and video services. The buy also bolsters IBM against CA Inc. and Hewlett-Packard Co., the other big network-management technology companies.

Investors immediately bumped up IBM (IBM) shares, which closed Wednesday at $83.12, up by $0.64 for the day, and raised Micromuse (MUSE) shares by $2.71, to $9.92.

After months of rumors, Google Inc. and Time Warner Inc. reached a deal late Tuesday that calls for Google to take a $1 billion, 5 percent stake in America Online Inc. (AOL). The deal expands the companies’ existing partnership. Among other things, AOL content will be more available to Google’s search engine technology, and the deal lets AOL sell search advertising to advertisers on AOL-owned properties. Time Warner rejected bids from Microsoft Corp.and Yahoo Inc.

Though the deal strengthens Google’s lead in the search arena, investors — probably thinking that the deal price was high — at first blush drove down the price of Google shares. Google shares (GOOG) closed Wednesday at $426.33, down $3.41. Although analysts said the price Google is paying means that the value of AOL is higher than what financial analysts have thought, the announcement of the deal did not do much for financially beleaguered Time Warner (TWX) shares, which closed Wednesday at $17.58, down $0.16.

Looking further out, though, the AOL pact puts Google in a good position, many analysts said. JMP Securities, for example, raised its 12-month target on Google shares by $175, to $575. In fact, by Thursday, Google’s share price was already climbing again, to close at $432.04, up $5.71 for the day.