Two companies active in the transaction security market are planning a merger announcement today.

Spyrus, a San Jose, Calif., company that makes smart card-type hardware for data encryption and authentication, agreed to acquire Terisa Systems Inc. of nearby Los Altos, which played a key role in development of the Secure Electronic Transactions protocol for on-line credit card payments.

Both are privately held and did not disclose terms of the deal. They timed their announcement for the first day of Cardtech/Securtech, a major conference on advanced card and identification technologies, in Orlando.

Spyrus will be the surviving name, but Terisa will continue as a brand. The companies have a combined 55 employees, most from Spyrus.

Allan Schiffman, who founded Terisa in 1995-its letters are scrambled initials of two early backers, RSA (Data Security Inc.) and Enterprise Integration Technologies-will be the merged company's chief technology officer.

Mr. Schiffman will report to Sue Pontius, chief executive officer of Spyrus, which she co-founded in 1992.

Spyrus offers a computer security card, or token, called Lynks. Terisa's flagship product, SecureWeb Toolkit, is used in developing software for Internet commerce.

The complementary products can deliver "end-to-end, portable personal security," which is needed to take electronic commerce "from a $50 million or $100 million market to a multibillion-dollar market," said Burton Tregub, Spyrus' vice president of market development.

The companies' target markets are finance, health care, and law, particularly security and privacy of electronic payments, messages, and documents. Spyrus customers include AT&T, IBM, Microsoft, and the Defense Department; Terisa's include American Express, Novell, WebTV, and a Taiwanese research institute developing a Visa SET pilot.

The two firms have had an informal technical relationship for more than a year and in January announced a partnership to provide integrated hardware and software for Internet applications. Two customers they have in common are MasterCard and Visa. Both merger partners are crucial to the Internet payment protocol, SET, that is nearing market readiness.

The bank card associations selected Terisa to provide the SET reference implementation, a benchmark for testing. Spyrus, jointly with Bankers Trust New York Corp. spinout Certco, was chosen last week as the root certificate authority-the top of the digital certification hierarchy for card transactions over the World Wide Web.

Kenneth Mohr, Terisa's director of product marketing, said the merger with Spyrus "is a strategic combination of the leader in smart card security products and the leader in Internet security protocols. It opens new opportunities for the company with new people and an expanded marketing strategy."

Between Terisa's software expertise and Spyrus' tokens-they are mainly PCMCIA computer cards but can be scaled down to integrated-circuit smart cards-"we have the intrastructure, we have developed the expertise, now we just need third-party vendors to buy it," added Mr. Mohr.

"We had the same vision for security over open networks," said Mr. Tregub. "Privacy and security needs to be solved on an end-to-end basis. With the partnership, integrity and privacy will be maintained and authentication guaranteed."

"The acquisition makes sense because Spyrus needs to expand beyond the government intelligence market, and Terisa brings a broad background in software-centric Internet security," said Greg Cline, director of networking and Internet research at the Business Research Group in Newton, Mass. "The only area where I see any overlap is in certification management."

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