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NAI to reorganize McAfee.com

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ComputerWire: IT Industry Intelligence

It took six months, but Networks Associates Inc looks like it's finally managed to bring McAfee.com Corp, the anti-virus service provider it spun out in 1999, back into the fold,

Kevin Murphy writes

. The final purchase price is about $200m, and after the deal closed Friday McAfee.com ceased to exist as a separate company.

NAI said it had bought 96% of McAfee.com's outstanding shares, about 75% of which it already owned, which allows it to execute a short-form merger under Delaware company law. NAI will pay $8 cash and 0.675 of an NAI share for every McAfee.com share tendered, and those that were not.

The plan now, according to a company spokesperson, is to merge McAfee.com into NAI's McAfee Security division. This business will be split into two units, one focusing on the consumer space, one on the enterprise. Bill Kerrigan, a 19-year IBM veteran, has been hired to run McAfee Consumer, which will comprise retail sales and McAfee.com.

It seems a modest number of layoffs are on the cards, too. "There certainly are redundant positions," said the NAI spokesperson. "For example McAfee.com was a publicly traded company, and now it is not." McAfee.com CEO Srivats Sampath has already said he will not return to NAI after the integration process is complete.

The merger makes sense for the sales teams of the two companies, which have faced complications due to the virtually identical branding. In addition, both companies' target markets have been converging at the edges, which caused problems with cross-selling agreements between them.

NAI first announced its intention to make McAfee.com wholly owned in March. It offered 0.675 shares for every McAfee.com share, a bid that was thrown out by a special committee of McAfee.com's directors as "financially inadequate". The company came back in April with a 0.78 shares offer, which was more to the special committee's liking.

However, shortly afterward the Securities and Exchange Commission slapped NAI with an investigation into the quality of its revenue, causing its share price to decline, and NAI withdrew the bid until July, after it had restated its earnings. However, in the meantime, McAfee.com had made a series of big channel wins with the likes of America Online Inc and Microsoft Corp, making it reluctant to accept such a low offer.

NAI increased its bid to 0.90 of a share, but that was also rejected by the special committee. Investors were reluctant to accept an offer without a cash component, as NAI's dealings with the SEC were still incomplete and its share price could have fluctuated depending on the outcome. The final offer was 81% higher than the March offer.

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