Why did Intel buy McAfee for $7.7 billion?

Summary:Chip giant Intel has thrown down $7.7 billion to buy security software firm McAfee ... why?

Chip giant Intel has thrown down $7.7 billion to buy security software firm McAfee ... why?

According to MarketWatch, Intel will pay $48 a share in cash to buy the firm, amounting to a shade under $7.7 billion. this works out as a premium of 62% over McAfee's closing price on Wednesday.

Question is, why?

That's a good question. Perhaps Intel feel that there's good money in buying into a security firm, or possibly the acquisition paves the way to embed security software directly onto processors. Or maybe Intel just had the cash to burn.

Intel is not shy of carrying out acquisitions so this move isn't that much of a surprise. With Intel's focus being primarily on CPUs and wireless, being able to incorporate security into these devices would give it a substantial upper hand over AMD (as if it needs one, Intel absolutely dominates AMD in all areas except graphics).

The deal is subject to the usual regulatory and shareholder approval.

[UPDATE: Here's Intel's statement:

NEWS HIGHLIGHTS:

•Purchase of all of McAfee’s common stock for $48 per share in cash, valuing the deal at approximately $7.68 billion. McAfee will operate as a wholly-owned subsidiary, reporting into Intel’s Software and Services Group. •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 elevates focus on security on par with energy-efficient performance and connectivity. The acquisition augments Intel’s mobile wireless strategy, helping to better assure customer and consumer security concerns as these billions of devices connect. •Intel has made a number of software-related acquisitions of leaders in their respective industries that also rely on great silicon, including Wind River, Havok and now McAfee. SANTA CLARA, Calif.--(BUSINESS WIRE)--Intel Corporation has entered into a definitive agreement to acquire McAfee, Inc., through the purchase of all of the company’s common stock at $48 per share in cash, for approximately $7.68 billion. Both boards of directors have unanimously approved the deal, which is expected to close after McAfee shareholder approval, regulatory clearances and other customary conditions specified in the agreement.

The acquisition reflects that security is now a fundamental component of online computing. Today’s security approach does not fully address the billions of new Internet-ready devices connecting, including mobile and wireless devices, TVs, cars, medical devices and ATM machines as well as the accompanying surge in cyber threats. Providing protection to a diverse online world requires a fundamentally new approach involving software, hardware and services.

Inside Intel, the company has elevated the priority of security to be on par with its strategic focus areas in energy-efficient performance and Internet connectivity.

McAfee, which has enjoyed double-digit, year-over-year growth and nearly 80 percent gross margins last year, will become a wholly-owned subsidiary of Intel, reporting into Intel’s Software and Services Group. The group is managed by Renée James, Intel senior vice president, and general manager of the group.

“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,” said Paul Otellini, Intel president and CEO. “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.

“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,” Otellini added.

“Hardware-enhanced security will lead to breakthroughs in effectively countering the increasingly sophisticated threats of today and tomorrow,” said James. “This acquisition is consistent with our software and services strategy to deliver an outstanding computing experience in fast-growing business areas, especially around the move to wireless mobility.”

“McAfee is the next step in this strategy, and the right security partner for us,” she added. “Our current work together has impressive prospects, and we look forward to introducing a product from our strategic partnership next year.”

“The cyber threat landscape has changed dramatically over the past few years, with millions of new threats appearing every month,” said Dave DeWalt, president and CEO of McAfee. “We believe this acquisition will result in our ability to deliver a safer, more secure and trusted Internet-enabled device experience.”

McAfee, based in Santa Clara and founded in 1987, is the world’s largest dedicated security technology company with approximately $2 billion in revenue in 2009. With approximately 6,100 employees, McAfee’s products and technologies deliver secure solutions and services to consumers, enterprises and governments around the world and include a strong sales force that works with a variety of customers.

The company has a suite of software-related security solutions, including end-point and networking products and services that are focused on helping to ensure Internet-connected devices and networks are protected from malicious content, phony requests and unsecured transactions and communications. Among others, products include McAfee Total Protection™, McAfee Antivirus, McAfee Internet Security, McAfee Firewall, McAfee IPS as well as an expanding line of products targeting mobile devices such as smartphones.

Intel has made a series of recent and successful software acquisitions to pursue a deliberate strategy focused on leading companies in their industry delivering software that takes advantage of silicon. These include gaming, visual computing, embedded device and machine software and now security.

Home to two of the most innovative labs and research in the high-tech industry, Intel and McAfee will also jointly explore future product concepts to further strengthen security in the cloud network and myriad of computers and devices people use in their everyday lives.

On a GAAP basis, Intel expects the combination to be slightly dilutive to earnings in the first year of operations and approximately flat in the second year. On a non-GAAP basis, excluding a one-time write down of deferred revenue when the transaction closes and amortization of acquired intangibles, Intel expects the combination to be slightly accretive in the first year and improve beyond that.

Intel was advised by Goldman Sachs & Co. and Morrison & Foerster LLP. McAfee was advised by Morgan Stanley & Co. Inc. and Wilson Sonsini Goodrich & Rosati, P.C.

This line says it all really:

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.

Bottom line - "Intel inside, protected by Intel." Bold move, and one that gives the chip giant a massive advantage (at least a perceived one) over AMD.

Lee Mathews of Download Squad gives us something to ponder:

Maybe this is a bad time to point out that McAffee 2010 posted the worst repair mark out of the 19 apps tested by AV-Test labs this quarter... Heck, it didn't even manage the 12 points required for certification.

Reactions as of 8:59 ET:

  • INTC: -2.25%
  • MFE: +58.2%
  • AMD: -0.91%

Interesting.]

Topics: Intel, Security

About

Adrian Kingsley-Hughes is an internationally published technology author who has devoted over a decade to helping users get the most from technology -- whether that be by learning to program, building a PC from a pile of parts, or helping them get the most from their new MP3 player or digital camera.Adrian has authored/co-authored technic... Full Bio

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