Websense Inc. (WBSN), Microsoft Corporation (MSFT): Buyout Clears the Way for Its Competitors but may Face Hurdles

A new competitive landscape

Even if Vista’s bid is not successful, it appears that WebSense will be taken private in the near future. This could permit the company to streamline its operations and launch new initiatives without worrying about “selling” them to shareholders. Since many of WebSense’s peers are privately held, the company could find itself better positioned to compete in an increasingly cutthroat segment of the technology industry. For larger competitors like Microsoft Corporation (NASDAQ:MSFT) and Symantec, WebSense’s “disappearance” could confer a temporary advantage that boosts profits and provides an opportunity for more robust product development. This could be a win-win situation for investors on both sides of the equation.

How can investors play it?

Since this deal offers no arbitrage premium in its current form, investors must play it on an indirect basis. Those who believe that WebSense’s buyout will confer a temporary advantage on its larger, more conservative competitors may wish to open long positions in Symantec or Microsoft. However, the upside to such a trade could be limited and would probably come over a fairly long timescale.

Fortunately, there is a decent likelihood that this deal will not survive in its current form. Investors who assume that Vista will ultimately raise its offer price or permit another firm to swoop in would do well to sit on the sidelines until the current deal falls through. Bolder traders might even wish to open short positions in WebSense on the expectation that the deal’s collapse will cause a temporary share-price fall. In either case, this situation calls for careful research and advanced trading strategies.

Mike Thiessen has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft.

The article Buyout Clears the Way for Its Competitors but may Face Hurdles originally appeared on Fool.com and is written by Mike Thiessen.

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