(For more Reuters DEALTALKS, click [DEALTALK/])
* Competitors could look to counter Intel's move
* Security software key part of integrated offering
* Intel deal could push up premiums for other deals
* Deal helps make busiest M&A week in Aug. since '06
By Bill Rigby and Paritosh Bansal
SEATTLE/NEW YORK, Aug 19 Intel Corp's (INTC.O)
surprise $7.7 billion bid for McAfee Inc MFE.N may trigger
more deals as competitors scramble for a piece of the rapidly
growing software security sector.
Technology giants Oracle Corp ORCL.O, Hewlett-Packard Co
(HPQ.N), IBM Corp (IBM.N) and EMC Corp EMC.N -- which are all
looking to expand the "stack" of hardware and software they
offer corporate clients -- could move to counter Intel's
That puts the spotlight on the world's biggest software
security company, Symantec Corp (SYMC.O), and a number of
smaller companies such as Checkpoint Systems Inc CKP.N,
Sourcefire Inc FIRE.O, Websense Inc WBSN.O and SafeNet.
"We're in the early stages of a major consolidation in
software, particularly in security," said FBR Capital Markets
analyst Daniel Ives. "This deal speaks to the convergence of
hardware and software, which is becoming increasingly more
important as the industry consolidates."
The larger tech companies are all moving towards offering
big-spending corporate clients an integrated range of products
and services to help them manage networks and data. Security is
now a critical part of that offering, making expert providers
The push to diversify has triggered a wave of consolidation
in the tech sector. Earlier this month, Dell Inc DELL.O
agreed to buy data storage company 3PAR Inc (PAR.N) for $1.15
billion. Last month SAP AG (SAPG.DE) bought Sybase for $5.8
billion and Hewlett-Packard bought smartphone-maker Palm for
Symantec itself has been on the acquisition trail. In June,
it bought PGP Corporation and GuardianEdge, two privately held
companies focusing on email and data encryption, for an
undisclosed sum. This month, it closed its deal to buy Verisign
Inc's (VRSN.O) payment authentication unit for about $1.3
Symantec shares jumped 6.2 percent on Thursday, giving it a
market value of around $10 billion.
Intel's deal for McAfee adds to what is turning into an
unusually active August for M&A activity. Deals worth nearly
$90 billion have been announced this week alone, making it the
largest week since August of 2006, according to Thomson Reuters
Serial acquirer Oracle, the business software maker that
branched out into hardware with its purchase of Sun
Microsystems in January, may feel forced to match Intel's
"Oracle almost has all the pieces for an integrated stack,
but is basically relying on somebody else to secure its
offering," said Richard Williams, an analyst at Cross Research,
who has a "buy" rating on Symantec. "That leads me to think
that Oracle at some point will try and take out Symantec."
Oracle, which has spent more than $42 billion to buy some
60 companies over the past seven years, declined comment.
Hewlett-Packard, the world's biggest PC maker, is also a
potential big acquirer in the sector.
Only this week it bought Fortify Software, which sells
compliance and anti-attack software to companies, for an
undisclosed sum. Hewlett-Packard, which is looking for a chief
executive after the acrimonious departure of Mark Hurd earlier
this month, declined comment.
IBM, which said in May it budgeted some $20 billion for
mergers and acquisitions through 2015, could also be a buyer.
It was not immediately available for comment.
"I do think that these other companies will take a serious
look at whether they need to do an acquisition or not," said
Steve Sonne, an M&A partner at law firm O'Melveny & Myers.
Microsoft Corp (MSFT.O), the world's biggest software
maker, can never be ruled out as an acquirer, but it already
has a range of security products such as Forefront for business
customers and Security Essentials for home users. It declined
to comment on plans to acquire in the sector.
Software deals draw price-to-earnings (PE) multiples in the
high 20s to low 30s, said a source close to the McAfee deal.
Intel paid a forward PE multiple of 18 to 19 times for
McAfee, which was trading around 11 times PE after a couple of
rough quarters, said the source, who spoke on condition of
anonymity because he was not authorized to talk to the media.
At $48 per share, McAfee shareholders got a 60 percent
premium to Wednesday's closing price.
That follows a slew of other rich premiums in recent
technology sector deals, such as the 56 percent premium that
German software maker SAP paid for Sybase and an 87 percent
premium that Dell is paying for 3PAR.
Sellers are likely to seize on that number in the future.
"Other sellers will try to use that as a benchmark to try
to get a higher premium," Sonne said. "If somebody else gets
offered a 20 percent premium, I am sure that the seller will
say: 'But McAfee just got 60.'"
(Additional reporting by Gabriel Madway, Jennifer Saba and
Ritsuko Ando; editing by Andre Grenon)