Instant View: Intel to buy McAfee for $7.7 billion

NEW YORK (BestGrowthStock) – Chip maker Intel Corp said Thursday it agreed to buy security technology firm McAfee Inc for about $7.68 billion in cash in an effort to boost its security offerings.

Under the terms of the deal, Intel said it would pay $48 per share in cash for McAfee, which would become a wholly owned subsidiary of Intel’s software and services group. The price is a 60 percent premium to McAfee’s Wednesday closing price.

Intel said it expects the deal would slightly reduce net earnings in the first year, although on a non-GAAP basis it is expected to help profit slightly. McAfee was founded in 1987 and had about $2 billion in revenue in 2009.

The following is reaction from industry analysts and investors:

THOMAS VILLALTA, PORTFOLIO MANAGER, JONES VILLALTA FUNDS, AUSTIN TX, WHICH OWNS INTEL SHARES

“It is a little bit weird.

“As we move more toward cloud computing, Intel is clearly going to play a role as far hardware standards. Certainly security is one of the larger issues out there.

“It’s a bit of a strange deal. I’m not sure how this fully fits in. If you look at what Intel has done over the past few years, it’s been more of a movement to pick up more internal computing components, selling more of a package, and how this fits in is a little bit different.

“Maybe it’s part of a broader effort to be more involved in software. This is a bit afield from what we would expect. I don’t know much about what the reasoning is. My first thought was, it’s a bit odd.

“We like the stock a lot (based on) an increase in business spending. Intel, IBM and EMC will be beneficiaries of companies deploying capital to more efficiently use technology.”

CHRIS HICKEY, ANALYST AT ATLANTIC EQUITIES

“It’s slightly out of left field. Nobody would have seen this coming. McAfee has been suggested as a take-out candidate for many years. … When you think about there could well be some interesting revenue synergies here. At the simplest level Intel has strong relationships with a number of PC and server vendors. This should be an opportunity to cross sell McAfee’s security software into those PC vendors. Intel would be well positioned to do that… and take on Symantec. When it comes to bidding with contracts with Dell HP and others I think Intel would be very well positioned.”

“I think more strategically and longer term it appears that Intel sees an opportunity to bring more security functionality and capabilities into its silicon.”

STACY RASGON, SANFORD C. BERNSTEIN, NEW YORK

“They are paying a bunch of money for it, right? We’ll see what they say about the synergies.”

“Security has been hot. Security is one of those growth areas. They are looking at ways to grow the business. This is a software company. It’s got a relatively high gross margin and they’ve had a relatively decent growth rate.”

“This surprised me. I’ll be honest. This is, as far as I’m aware, this is one of the biggest if not the biggest acquisition they’ve ever done.”

VIJAY RAKESH, STERNE AGEE, CHICAGO

“It’s a fairly big acquisition for Intel. I think they’re probably trying to build up their software side…It looks like Intel is trying to get from the hardware to the services side of the business so it will be interesting to see how that goes.”

“I think people were probably (expecting) some smaller acquisitions from Intel, it’s definitely — even by Intel’s standards — a pretty big acquisition for them.”

“It definitely seems to be a pretty high premium in this environment.”

OLIVER PURSCHE CO-PORTFOLIO MANAGER, GMG DEFENSIVE BETA FUND, SUFFERN, NY

“We’re bullish on Intel even though the stock hasn’t particularly performed well. We look at it as a company that has enough cash on hand that they could start paying a higher dividend, or a one-time special dividend, which would make it an attractive holding.

“(The McAfee deal) does fall in line with what we’re seeing, a pick-up in M&A activity, which we view as early signs of positive news for credit markets and positive signs to come in terms of activity in the stock market. After the mid-term elections, we could see good gains for investors.”

(Reporting by Nick Zieminski, Carolinee Humer and Elinor Comlay)

Instant View: Intel to buy McAfee for $7.7 billion