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Technology Stocks : Network Associates (NET) -- Ignore unavailable to you. Want to Upgrade?

To: John Carragher who wrote (1978)	2/10/1998 7:28:00 PM
From: John Carragher	Respond to of 6021

Dow Jones Newswires -- February 10, 1998 Network Associates Builds $650M Acquisition War Chest By Jeff Benjamin NEW YORK (Dow Jones)--Network Associates Inc. (NETA) has bellied up to the table and is expected to begin feasting on the highly fragmented software-products marketplace. Industry analysts said the company, which was formed less than three months ago through the merger of McAfee Associates Inc. and Network General Corp., is poised to become "the player" in the security software market. A developer and supplier of network-management and security software products, Network Associates increased its acquisition war chest to about $650 million on Tuesday with a $300 million private offering of zero coupon convertible bonds. Company executives have stated to analysts that the company could spend as much as $450 million of that cash reserve on acquisitions. "I've heard they have several large encryption (technology) deals pending," said Bruce Smith, an analyst with Merrill Lynch Global Securities. "I think the company is going to become very acquisitive." Smith echoed the sentiments of several analysts who have seen Network Associates' buggy-whip speed in executing its plans for growth. Network Associates executives weren't available for comment, but the company is expected to reiterate its acquisition plans during a Feb. 26 meeting with analysts. Since the Santa Clara, Calif., company was formed on Dec. 1, it has acquired Pretty Good Privacy Inc. in a $36 million cash deal and Helix Software in a stock deal worth $27 million. Both acquisitions fit in with Network Associates' strategy of integrating product lines in the areas of security, network monitoring and desktop support systems. Peter Rogers, an analyst with Volpe Brown & Whelan Co., said he felt the primary rationale behind the McAfee/Network merger was to "create a vehicle for consolidating a very fragmented industry." "They want to be the largest player and the dominant player," Rogers said. "That means they're going to have to make a number of acquisitions." By most analysts' estimates, the security and network-monitoring markets could include upward of 2,000 companies. Many of those are small, privately held and have just one or two products. Arthur Newman, an analyst with Gerard Klauer Mattison & Co., said Network Associates' marketing strategy requires that the company have multiple products to bundle and sell as packages. In offering these bundled packages with multiple related products, Network Associates is building market share even before some markets have fully developed, Newman said. For instance, Newman said that while the need for encryption technology hasn't really caught on, Network Associates now offers it at a cheap price along with other networking products. "That's how they position themselves," Newman said. "Right now, the uptake on encryption is limited. But they bundle in a low-cost product like that now, and when the market is there down the road, they've already captured that market." As Rogers of Volpe Brown explained, the bundling is done strategically and consists of more than just shrink-wrapping two boxes together. "The purpose of this is to sell related products that can work together," Rogers said. "They complement one another." Merrill Lynch's Smith said he expects Network Associates to rely on its ample cash reserve to make acquisitions in the $50 million to $150 million range. Deals beyond the $150 million range would likely involve some stock. But most analysts agree that Network Associates' stock is still undervalued at around 57 and that the company would prefer to wait until the stock appreciates before using it for acquisitions. Even without acquisitions, analysts estimate that Network Associates will grow at a rate between 30% and 35% through the end of 1999. At that pace, revenue is expected to reach $810 million by the end of 1998 and $1.1 billion by the end of 1999. - Jeff Benjamin; 201-938-2118 Powered by Quote Agentr and News Agentr from Gari Software/IDD Information Services Copyright c 1998 Dow Jones & Company, Inc. All Rights Reserved.