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By Jim Finkle

BOSTON, Oct 8 (Reuters) – Symantec Corp (SYMC), the No. 1 security software maker, plans to expand its Internet services business by acquiring online messaging and Web security services provider MessageLabs for $695 million.

The move, announced on Wednesday, will add the privately held company’s instant-messaging, e-mail and Internet-security products to Symantec’s fledgling portfolio of Web-based services for businesses.

Symantec, best known to consumers for its Norton line of PC security software, recently introduced an online storage service for businesses dubbed the Symantec Protection Network. Chief Executive John Thompson has promised to expand Web-based offerings as he looks to accelerate revenue growth.

Cupertino, California-based Symantec is one of several technology companies, including Dell Inc (DELL), EMC Corp (EMC), IBM (IBM) and Microsoft Corp (MSFT), that are trying to boost sales by adding new products distributed over the Web, a strategy often called "cloud computing."

They are following the footsteps of successful Internet companies such as Google Inc (GOOG) and (CRM).

‘The world has changed’

The company told analysts that costs associated with the acquisition will reduce fiscal 2009 profit excluding items by 2 cents per share.

Friedman, Billings, Ramsey & Co analyst Daniel Ives thinks the acquisition is a good fit strategically for Symantec. Still, he cut his price target on Symantec shares to $18 from $23 in response to the financial meltdown.

"Look, the world has changed," he said. "You’d have to be living under a mattress with your ears plugged not to be concerned."

Ives maintained his "market perform" recommendation on the stock as well as his earnings forecasts for the company.

Meanwhile JP Morgan raised its recommendation on the stock to "overweight" from "neutral."

Symantec said it will pay about 310 million pounds sterling and $154 million for MessageLabs, which has 19,000 customers, 512 employees and regional headquarters in Gloucester, England, New York and Sydney, Australia.

Key investors in MessageLabs include Catalyst Investors and Prospect Investment Management.

MessageLabs revenue rose more than 20 percent to about $145 million in its last fiscal year, which ended July 31.

Symantec reported revenue of $5.9 billion in its most recent fiscal year.

Symantec shares rose 11 cents to $15.10 in midday Nasdaq trading, while smaller security software rival McAfee Inc (MFE) rose 2.3 percent, or 58 cents, to $28.60.

1 British pound = $1.73 (Additional reporting by Franklin Paul in New York; Editing by Steve Orlofsky and Derek Caney)

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