By Balasubramanyam Seshan, Manikandan Raman: Subscribe to Balasubramanyam's RSS feed
August 19, 2010 1:17 PM EDT
Intel Corp. is buying McAfee Inc. for about $7.68 billion in cash that will augment the chip giant’s security portfolio.
The deal is expected to be significantly altering the competitive portrait in the security industry and puts Intel into competition with Symantec and Microsoft.
Intel had previously partnered with the two vendors. The latest deal suggests that Intel could have lost confidence on both firms on security front.
“We believe Intel buying McAfee significantly changes the landscape of the security software landscape and speaks to the convergence of numerous technologies in the enterprise environment,” analyst Daniel Ives at FBR Capital Markets said in a note to clients.
Ives, who maintains his “outperform” rating on Intel, said he does not expect another bidder to enter this process.
“While Intel buying McAfee is not the combination that investors were expecting to wake up to today, it is a monumental deal that speaks to the value in McAfee that has been underappreciated by investors for the last year,” Ives said.
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California-based Intel will pay shareholders of McAfee $48 a share, representing a premium of 60 percent to McAfee’s closing price on Wednesday.
“Acquisition enables a combination of security software and hardware from one company to ultimately better protect consumers, corporations and governments as billions of devices - and the server and cloud networks that manage them - go online, Intel said in a statement.
“The addition of McAfee products and technologies into the Intel computing portfolio brings us incredibly talented people with a track record of delivering security innovations, products and services that the industry and consumers trust to make connecting to the Internet safer and more secure,” said Paul Otellini, Intel’s Chief Executive.
Providing protection to a diverse online world requires a fundamentally new approach involving software, hardware and services so this deal helps in combining the security technology of McAfee with Intel’s software and services. The Santa Clara-based McAfee will operate as a subsidiary reporting into Intel’s Software and Services Group.
“The cyber threat landscape has changed dramatically over the past few years, with millions of new threats appearing every month. We believe this acquisition will result in our ability to deliver a safer, more secure and trusted Internet-enabled device experience,” said Dave DeWalt, Chief Executive of McAfee.
Organizations today are challenged with managing thousands of computers and ensuring they are running properly and that the information on them is secure and in compliance with industry and organizational policies and mandates.
As a result, technology giants are looking to offer a bundle of systems and services and are eyeing security softwares to make their product more attractive in the market. Recently, many tech stalwarts started to add several security software firms in to their kitty.
This week, Hewlett-Packard said it is buying privately-held Fortify Software in an attempt to boost its application security services. In July, IBM acquired PC security specialist BigFix. Even, Websense and SonicWALL have also been touted as potential acquisition targets.
Intel itself has made a number of software-related acquisitions, including Wind River, Havok and now McAfee.
Intel expects the acquisition to be slightly dilutive to GAAP earnings in the first year of operations and about flat in the second year. Intel anticipates the deal to slightly add to its non-GAAP earnings in the first year and improve beyond that.
McAfee’s earnings during the latest second quarter were $98.17 million or 63 cents a share, compared to $94.67 million or 60 cents a share last year. Adjusted revenue rose to $495.34 million from $468.69 million a year ago. Cash and cash equivalents at the end of June 30, 2010 were $679.54 million.
In its latest second quarter, Intel earned $2.89 billion or 51 cents a share on a 34 percent growth in revenue at $10.8 billion. Intel ended the quarter with cash and cash equivalents $5.51 billion.
Intel’s shares were trading down 2.76 percent at $19.05 in the pre-market session, while McAfee shares were trading up 58.17 percent at $47.34.
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