McAfee.com rejects NAI bid (again)

Who will rid us of this turbulent bidder?

ComputerWire: IT Industry Intelligence

McAfee.com Corp may be considering ways it could force former parent Network Associates Inc to withdraw its unwanted acquisition bid, after 96% of shareholders rejected NAI's buyout offer yesterday,

Kevin Murphy and Matthew Aslett write

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But there remains some confusion on whether McAfee.com has ruled out a "poison pill" shareholder rights plan, or even if it is permitted to adopt one.

NAI yesterday extended its tender offer to acquire the 25% of McAfee.com it does not already own, after only 4% of McAfee.com shareholders tendered their shares before Tuesday's deadline. At market close Tuesday, McAfee.com shares traded at $13.79, about 20% higher than NAI's offer of 0.90 shares for every McAfee.com share.

"We had an inkling that it could be a strong showing against NAI, but we didn't realize it would be so strong," McAfee.com CEO Srivats Sampath told ComputerWire. "It's a pathetic performance by any standard. They need to get serious about the offer, or they should walk... this is bordering on irresponsible."

Asked if McAfee will force NAI to terminate its offer by implementing a shareholder rights plan, Sampath said: "We could, there are multiple options available... we have to go see about what options are available to us as a company... We're going to take it one day at a time."

He added that the company originally decided against a poison pill in order to give shareholders their chance to vote without company intervention.

However, NAI executive VP and general counsel Kent Roberts told ComputerWire that McAfee.com's board had committed not to adopt a shareholder rights plan in order for the offer to go ahead. He also said that such a plan would not be enforcable.

At a meeting shortly before the current offer was made, the McAfee.com board agreed not to adopt "structural defenses that would prohibit the consideration of the offer by the McAfee.com stockholders," according to regulatory filings.

"We had an agreement from the board not to do that," Roberts said. He added that NAI believes any poison pill would be legally "unenforceable", as it would be an "impermissible dliution" of NAI's 85% majority position in McAfee.com. The two companies have discussed this at length, according to regulatory filings.

NAI will only buy the tendered shares if it can secure 90% of them, at which point it can execute a "short form" acquisition - a fast-track merger under the laws of Delaware, where both companies are incorporated. However, NAI's offer will be automatically terminated if McAfee.com adopts a shareholder rights plan.

It could be in McAfee.com's best interests to force such a move, assuming it is able to. The company feels its share price has been artificially depressed by the lingering threat of an NAI acquisition since March. A leap in price, reflecting recent good news at the company, could occur if NAI's offer is taken off the table.

Naturally, NAI wants to bring McAfee.com back into the fold as cheaply as possible, and yesterday said it has extended the offer until August 13, but has not increased the offer price. Both companies agree that recombining the company has "long-term benefits", and a merger seems ultimately inevitable.

The only issue is the price. NAI's Roberts said that McAfee's shareholders will take another look at the offer and see that it is the best deal, despite the current "market speculation" that has caused share price fluctuations that make the deal look worse. "We've been offering a premium on their share price since the beginning," he said.

While McAfee.com's share price fell on the news that the tender offer had been rejected, it was still trading above $13, while NAI's share price also slid and continues to trade below $12. Unless McAfee.com's share price drops suddenly, or NAI's starts to climb, NAI will have to up its offer to more than a single share, or make a cash offer, if it is to reacquire the portion of McAfee.com it spun off via IPO in 1999.

NAI's first attempt to reacquire McAfee.com was launched in March 2002. The initial offer of 0.675 of an NAI share was rejected by the McAfee.com board just a week later, and in April was upped to 0.78 of a share. That offer was accepted by McAfee.com's board but was dropped after NAI became the subject of a regulatory probe. In early July, NAI relaunched its offer of 0.78 of a share, before upping it to 0.90 of a share in mid-July due to the negative effect of share price fluctuations on its overall value.

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