Network Associates to Restate Two Years, Withdraw McAfee.com Bid
By Ronna Abramson
04/25/2002 13:15
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Updated from 8:13 a.m. EDT
Shares of Network Associates NET sank Thursday on news that the computer network security company will have to restate its 1999 and 2000 financial statements because of "accounting inaccuracies." Because of the restatements, Network Associates, already under investigation by the Securities and Exchange Commission , said has withdrawn its offer to acquire its dot-com spinoff McAfee.com MCAF for a second time in less than a month.
Shares of Network Associates were down $5.52, or 23.2%, to $18.23 in recent trading, while shares of McAfee were plummeting $4.88, or 26.3%, to $13.66.
Network Associates said in a press release that an internal investigation by its audit committee is underway, and it has informed the SEC of its progress. Network Associates has yet to determine the magnitude of the restatement or the full extent of the periods that will need to be covered, although it did say nothing indicates that 2001 or first-quarter 2002 results will be affected.
About a month ago Network Associates said it was under investigation by the SEC and for the first time postponed its March 18 offer to acquire McAfee.
At the time Network Associates announced the SEC investigation, the company said it and its auditors were comfortable with its numbers. Shortly thereafter, Network Associates sweetened its deal to buy McAfee and McAfee recommended accepting the deal after rejecting the earlier lower price.
Network Associates already owns about 75% of McAfee.com but said it has withdrawn its offer to acquire the shares it does not already own. Network Associates said nothing encountered so far has involved the flow of funds betwen the company and McAfee.
"McAfee.com shareholders must have access to a full and accurate picture of Network Associates financials in order to make an informed decision about tendering their shares," Network Associates CEO George Samenuk said on a conference call Thursday morning.
Network Associates executives said on the call that they will update investors on the internal investigation in two to three weeks, with the intent of providing more detail on the size and reach of the restatements at that time. A preliminary review shows they affect both revenue and expenses, CFO and COO Steven Richards said. Samenuk said, to his knowledge, the issues being examined by the company are unrelated to those being investigated by the SEC, which he said is looking at December 2000 events.
When asked if Network Associates will make a third tender offer for McAfee.com when the investigation is complete, Samenuk said he could not legally say more than that the company has withdrawn its offer. On a separate conference call, McAfee CEO Srivats Sampath said realistically it would take a few months for Network Associates to resolve its investigation.
"It certainly looks like where there is one cockroach there tends to be another," said Legg Mason analyst Todd Weller. But Weller maintained his strong buy ratings on both McAfee and Network Associates because he said he believes the investigations are focusing on issues involving past management and should not affect the current or future value of the company. "We still don't have any reason to believe these issues are in the current Network Associates regime," Weller said.
Weller said he believes Network Associates will move again to acquire McAfee after the investigations are resolved and suggested that had the deal involved cash rather than stock, it may still be going forward. "The reasons for acquiring McAfee still hold," he said. His firm hasn't done any banking business with either company.
Network Associates has said it wanted to fold McAfee back under its umbrella to reduce confusion about the McAfee brand and expand its reach into the consumer market. McAfee has said it would benefit from Network Associates' larger sales force.
But on Thursday, Sampath seemed to backpedal from that view, saying that he believes the acquisition would have brought more benefits to Network Associates than McAfee. "I truly believe in the long-term independence of this company," Sampath said.
McAfee went public during the dot-com craze to sell security software developed by Network Associates via the Internet to consumers. Network Associates also sells products with the McAfee name, primarily to corporate customers.
Samenuk and his team joined Network Associates after the departure in December 2000 of CEO Bill Larson, President and COO Peter Watkins and CFO Prabhat Goyal. Larson's reign included an investigation by the SEC into R&D writeoffs that ultimately forced the company to restate 1998 earnings and prompted more than a dozen shareholder lawsuits.
On the conference call, the current executive team said inaccuracies in 1999 and 2000 figures came to light while preparing a routine refiling of the company's 1999 tax returns. |
