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Risk

8/20/2010
11:56 AM
George V. Hulme
George V. Hulme
Commentary
50%
50%

Intel Buys (Overpays For?) McAFee For Growth

Chipmaker Intel buys security software maker McAfee for $7.68 billion. The question is: why?

Chipmaker Intel buys security software maker McAfee for $7.68 billion. The question is: why?From Paul McDougall's story yesterday:

Intel shook up the security landscape Thursday, announcing that it has agreed to acquire antivirus software maker McAfee for $48 per share, or $7.68 billion. The deal, if it passes regulatory muster, would enable the chipmaker to offer tightly integrated hardware and software security solutions for PCs, servers, and mobile devices.

Intel said it plans to operate McAfee as wholly-owned subsidiary within its Software and Services group. Company officials said the increase in threats that target online computing is a major reason behind the acquisition.

That $48 a share is a hefty 50 percent plus premium on McAfee's previous day's closing price of $29.93. So why did Intel pay up so much?

Rumors of other suitors at the potentially at acquisition table have been plentiful: such as Microsoft or IBM. That's always a possibility. Eric Jackson, senior contributor at TheStreet.com however sees Intel's move as a desperate grasp for growth:

This big-chip company's future success as a stock is based on its ability to continue to grow its top-line. With the PC market potentially set to take a pause, Intel's growth story is imperiled. Therefore, why not grab a high-margin software business that's running in a duopoly to pad the numbers.

That makes sense considering the security software market continues to be a bright spot of growth. Gartner estimates the segment to grow more than 11% this year over last. (See: Security Software Market Expected To Grow).

And growth is what Intel appears to seek, based on these quotes from Intel CEO Paul Otellini:

"With the rapid expansion of growth across a vast array of Internet-connected devices, more and more of the elements of our lives have moved online,"

"In the past, energy-efficient performance and connectivity have defined computing requirements. Looking forward, security will join those as a third pillar of what people demand from all computing experiences,"

But at a 50% premium? The price they paid to achieve that growth was too high. And with INTC falling 3.52 percent the day the deal was announced to close at $18.90, I'd say investors agree.

For my security and technology observations throughout the day, find me on Twitter.

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