Barracuda plans SourceFire acquisition, discussion update #2

Here is a discussion between Barracuda and SourceFire regarding possible acquisition of the latter.

#1 – Baracuda CEO e-mail to Joseph R. Chinnici from Sourcefire.

June 9, 2008

Joseph R. Chinnici, Chairman
The Board of Directors
Sourcefire Inc.
9770 Patuxent Woods Dr.
Columbia, MD 21046

Dear Joseph:

Thank you for your call the other day.  It was helpful to learn of your perspective on Sourcefire and its value.  Your comments contributed to a better understanding of the basis of your thoughts.  As a follow-up, I want to take this opportunity to reiterate several of the points made previously and to revise our proposal.

As has been disclosed, Barracuda Networks is interested in acquiring Sourcefire because we believe that a combination of our companies makes strategic sense and is in the best interests of Sourcefire’s stakeholders.  Over the past few months we have had discussions with Wayne Jackson and with some of your fellow directors in an unsuccessful effort to enter in to negotiations regarding such a combination.

In our letter to Wayne Jackson dated May 27, 2008, we offered $7.50 per share, a meaningful premium to the trading and enterprise value of Sourcefire at the time.  We based our offer on the best available information that we had about Sourcefire and its prospects and how the combined businesses could operate together.  In our discussion, you indicated that our proposal does not reflect the total value of Sourcefire.  Obviously, if we are relying exclusively on publicly available information, the tendency may be to accord less value than insiders perceive because it is not possible to assess fully the prospects and risks inherent in the business. 

We are prepared to raise our offer to $8.25 per share at this time and we are interested in working together with you and your team, pursuant to an appropriate Non-Disclosure Agreement, to understand where additional value may be found.  Appropriately informed, we are prepared to continue the discussion of fair consideration to the Sourcefire shareholders.

We believe that, working together, we can consummate a transaction that enhances value for the Sourcefire shareholders, with minimal disruption to your organization.  Further, we do not expect any financing contingencies or extensive regulatory hurdles to completing this transaction.  We have engaged Needham & Company, LLC and Wilson, Sonsini, Goodrich & Rosati as our financial and legal advisors and they are standing by to commence the due diligence investigation and facilitate our informed discussion of valuation.

We would like to enter into a NDA and to work with you and the management team to identify areas of value and to create a transaction that enhances value for our respective shareholders.

I look forward to your response.

Respectfully,
Dean Drako
President and CEO
Barracuda Networks Inc.

#2 – Joseph R. Chinnici’s negative reply to Baracuda CEO.

June 18, 2008
 
Dean Drako
President and Chief Executive Officer
Barracuda Networks, Inc.
3175 S. Winchester Blvd.
Campbell, CA 95008
 
Dear Mr. Drako:
 
We have received your unsigned letter dated June 9, 2008, expressing an interest in acquiring Sourcefire, Inc.
 
Our Board of Directors, with the assistance of our advisors, has carefully reviewed your indication of interest. We believe that your indication of interest substantially undervalues the company and is not in the best interest of Sourcefire and our stockholders. In addition, your letter and your prior correspondence contain a number of inaccuracies which, under the circumstances, we need not enumerate here.
 
On June 16, 2008, we successfully completed our Chief Executive Officer search and announced the appointment of John C. Burris as our new Chief Executive Officer. The Board is confident that Mr. Burris will build upon our strategic plans to take Sourcefire to the next level to maximize stockholder value.
 
Very truly yours,
 
Joseph R. Chinnici
Chairman of the Board of Directors
Sourcefire, Inc.

#3 – Snippet from Barracuda press release; bid is increased to $8.25 per share in cash.

June 24, 2008

Barracuda Networks announced that it has increased its offer to acquire Open Source innovator and SNORT creator, Sourcefire Inc., to $8.25 per share in cash. 

Barracuda Networks first made this proposal to Sourcefire in a confidential letter to Sourcefire Chairman Joseph R. Chinnici on June 9.  The letter also repeated invitations to engage in discussions that would help Barracuda Networks understand where additional value might be found that could enable Barracuda Networks to further increase its proposed price. 

Sourcefire declined Barracuda Networks’ June 9 proposal in a letter dated June 18, shortly following Sourcefire’s announcement that John C. Burris would replace Wayne Jackson as the company’s CEO.  The letter stated that the Sourcefire board believes the Barracuda Networks proposal is not in the best interest of Sourcefire and its stockholders and that the “Board is confident that Mr. Burris will build upon our strategic plans to take Sourcefire to the next level to maximize stockholder value.”

“We genuinely believe that it is in the best interests of Sourcefire’s stockholders for the board to accept Barracuda Networks’ proposal and enter into meaningful discussions with Barracuda Networks regarding the terms of a transaction,” said Dean Drako, Barracuda Networks President and CEO.  “Despite their refusal of our revised proposal, we hope to continue dialogue with the Sourcefire board and Mr. Burris to reach mutually agreeable terms.”