McAfee.com, a wholly-owned subsidiary of Network Associates, Inc. NETA ,
announced that it has filed a Registration Statement with the SEC relating to a
proposed initial public offering of its Class A common stock. McAfee.com MCAF
registered to sell up to $57,500,000 of its Class A common stock to the public.
Morgan Stanley Dean Witter will act as the lead underwriter of the offering, which will
be co-managed by BancBoston Robertson Stephens and Hambrecht & Quist.
Purchasing shares of a company and holding prior to the spin off of a subsidiary has
often been a successful trading strategy in the past, particularly if high-profiled
underwriters are involved.
=DJ McAfee.com IPO Seen Aimed At Capturing Web-Stk Prices
By Anthony Palazzo
This story was originally published late Thursday.
LOS ANGELES (Dow Jones)--McAfee.com, a unit of Network Associates Inc. (NETA), filed
for a $57.5 million initial public offering in a widely anticipated move aimed at
capturing the higher valuations investors place on Internet companies.
"The first purpose (of the IPO) is to unlock the value of the asset for Network
Associates shareholders," Greg Wharton, McAfee.com's general counsel, told Dow Jones.
"The stock has been underperforming despite the fact that it has these spectacular
e-commerce assets in its war chest."
Investors' first reaction, though, was negative, as they clipped 7.5% from the value
of Network Associates shares. A run-up of the stock in anticipation of the IPO
announcement may partly explain this reception, analysts said.
McAfee.com, of Santa Clara, Calif., will be one of the first "applications service
providers" to go public. These are software companies that host applications on their own
bank of servers. Users reach them through an Internet connection. "We have a license to
exploit all of Network Associates' products" for the consumer, on-line market, Wharton
said.
Network Associates, also of Santa Clara, makes network management, utility and
security software. From these, McAfee.com offers its subscribers anti-virus, PC repair
and Year 2000 compliance software, plus added services such as free e-mail. McAfee.com's
service, currently priced at $19.95 a year, has more than 900,000 trial subscribers,
McAfee.com said in the filing. In the six months ended June 30, the company's operating
loss was $10.7 million, on revenue of $9.3 million.
"Wall Street has different expectations, different metrics in how they measure a large
enterprise software company and how they measure an emerging application service
provider," Wharton said. The IPO "will allow these assets to be developed and measured in
accordance with how you would measure an e-commerce company, and not a software company."
Network Associates won't offer any of the 36 million McAfee.com shares it owns,
Wharton said. Instead, McAfee.com will issue new shares - the number of shares will
depend on the offering price - expected to dilute Network Associates' stake to about
85-90%. That would give McAfee.com a market capitalization of between $383 million and
$575 million at the offering price.
Analysts generally viewed the IPO favorably. "It's a good idea," said Bob Lam, a Bear
Stearns analyst. "The value of the Web site has been hidden in Network Associates'
stock."
With the normal Internet IPO "pop," McAfee.com's market cap should reach north of $600
million, said Christopher Stix, an analyst with SG Cowen & Co. "I would expect it to
trade up."
Despite the favorable views, investors panned Network Associates shares after the
announcement. Several factors could have played into this reaction, analysts said. They
include: a sharp run-up in Network Associates shares in the past two weeks, fed by
anticipation of the IPO; a very bad day in the market for tech stocks; and disappointment
that the offering wasn't for a bigger piece of McAfee.com.
"I don't think it's exactly what the Street expected," said Richard T. Williams, an
analyst with Jefferies & Co. in Los Angeles, who nonetheless thinks the deal is a
positive move. "People were expecting them to sell more of it, or spin it off
completely."
As a majority-owned subsidiary, the higher marketing costs McAfee.com is expected to
incur after the IPO will affect Network Associates' earnings. To give investors the full
picture, Network Associates plans to report three sets of numbers after the IPO: The
consolidated results, McAfee.com's stand-alone results, and Network Associates' results
with McAfee.com stripped out, Wharton said.
Network Associates officials did not return a call to comment. But one person familiar
with the company's thinking said this: "It made sense to find a deal format that allows
McAfee.com to go and execute in its marketplace but still affords Network Associates
confidence that it can retain control over its technological assets."
Network Associates Nasdaq-listed shares fell 1 5/8 to close at 20 on heavy volume of
9.5 million shares, compared with average volume of 4.3 million.
-By Anthony Palazzo; 323-658-3776; tony.palazzo@dowjones.com
(END) DOW JONES NEWS 09-24-99
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