Websense is bulking up to take on the big IT security vendors by buying Surf Control, the British censorware developer, for £201m ($400m) cash.

It is also bulking up the debt side of its balance sheet, as it is borrowing money to help pay for Surf Control. Post-acquisition Websense expects to have $180m-$200m in debt and cash and marketable securities of $50m. The company aims to reduce debt "aggressively through internally generated cash flows".

Websense thinks that it can generate incremental pro forma cash flow from operations of $15m or so in the next 12 months, rising to $30m in 2009 and $50m in 2010.

The company also reckons it can generate annual "cost synergies" of more than $60m from the takeover, although it doesn't say how, beyond improving Surf Control's operating margins.

At first the acquisition will be slightly dilutive to earnings, but it should enhance earnings per share by 20 per cent within 12 months. And of course the company will have to retain enough Surf Control's customers to make its calculations work out.

The deal is subject to the usual regulatory hurdles and shareholder approval. ®