View
458
Download
0
Category
Preview:
DESCRIPTION
Intel acquisition of McAfee
Citation preview
An Analysis of the McAfee Acquisition
Ebube Anizor
Nasir Gondal
Vijay Ranganathapura
Prodip Saha
Adam Wexler
SG
MT
6050
December 6, 2010
Overview: Proceed with Caution
Valuation2
DCF valuation between $7.4B and $8.7B (including cash on hand)
Comparable transactions – $3.5B or $4.7B (Sales or NI) Comparable companies - $3.4B or $6.9B valuation (E/B or P/E) Cost synergies minimal. Future value based on new product synergies
Post-Merger Integration
4 Wholly owned subsidiary that will operate under McAfee brand Integration focused on cross-company product development and
marketing
Strategic Fit1 Growth in net-connected devices. Both lack presence in segment
Hardware-Software security / Multi-function CPU‘s growing trend Both Intel and McAfee need diversification from mature segments
Overall Deal5 Big Bet: Hardware-software security integration is competitive
advantage in maturing and emerging segments McAfee ROE & ROI is low. Poor investment unless synergies realized
Negotiation3 Offer of $7.68B in cash, appropriate for valuation
Agreement structured to lock out rival bidders – 60% premium Seemingly no concessions made by McAfee
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
$0
$50
$100
$150
$200
$250
2010 2011 2012 2013 2014 2015 2016 2017 2018
Smartphone
Notebook PC
Desktop PC
Netbook
Tablet
Server
market size growth
Strategic Fit: Shared Challenges
Mc
Afe
e S
tra
teg
y
• Three Pillar Strategy focussed on CPU:
• Internet Connectivity | Energy Efficient Performance | Security
• Trend: Multi-function CPUs / Hardware-Assisted Security
• Risk: Concentration of revenue in PC segment & dependence on few customers
• Pure-play multiplatform strategy serving
corporations and consumers
• Growing presence in mobile via acquisitions
• Risk: Loss of consumer revenue to cheaper
options
Growth: strong in mobility segment, stagnant in desktop/server, steady decline in overall market
80.7%
19%
0.3%
Intel
AMD
Via
Sources: TRENDS: Business Insights, Datamonitor, Euromonitor | MARKET SHARE: TechEye, AP, Yahoo | All figures 2009
22%
11%
7%5%4%
51%
Symantec
McAfee
Trend Micro
IBM
EMC
Others
26%
12.3%
12%
11%6%
34%
Qualcomm
Texas InstrumentsSTM
Media Tek
Infineon
Other
Mobile CPU MarketIntel Segment RevenuePC/Server CPU Market
Inte
l S
tra
teg
y
75%
18%
4% 3%PC
Data Centre
Mobile+
Others
Consumer and Corporate Security Market
• Premiums: 119% income | 64% revenue vs. deals (2006-10)
• VALUATON: $3.5 billion to $4.7 billion (Revenue vs. Net Income)
0.5, 18.4
1.2, 5.2
3.9, 33.7
1.6, -1.6
4.0, 44.3
2.4, 20.2
-5
0
5
10
15
20
25
30
35
40
45
50
0 1 2 3 4 5
Ne
t In
com
e M
ult
iple
Revenue Multiple
Weighted Avg.
Valuation: Fair Price
Dis
co
un
ted
Cash
Flo
w
Questionable Shareholder Value: Low Risk, Low Reward
Co
mp
ara
ble
C
om
pa
nie
s &
T
ran
sa
cti
on
s
• Value: no significant cost synergies, ALL value resides in
potential new product offerings and entering new segments
• VALUATION: $6.5 billion to $7.8 billion (no synergies)
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
“As-Is” Improvements Synergies Options
0%
5%
10%
15%
20%
25%
30%
WACC D/E ROE ROIC CF Margin
Competitors (Intel)
Intel
McAfee
Competitors (McAfee)
Ra
tio
s
Ta
rge
t P
ric
e
Offset
decline in
maturing
segments
with new
offerings in
mobile &
cloud
Form
hardware
partnerships
and reduce
COGS to fall
in line with
competitors
Security integrated CPU’s to
gain traction in mobile &
cloud and maintain
revenue in core
segments
$6.5B $7.8B $10.6B $14.1B
• VALUATION: $3.4 billion to $7 billion (E/B vs. P/E)
Trans.
$3.5B -$4.7B
• No recent deals of comparable size and relevance
Comp.
$3.4B-$7B
•$7B reflects earnings expectation
DCF
$6.5B to $7.8B
•More rigorous
•In line with P/E
w/o cash*
$6.5B to
$7.8B or
w/cash
$7.4B to
$8.7B
*McAfee had $893M in cash as of 12/31/09
Negotiation: High Price to Pay?
BATNA: Partner with or buy smaller pure play security
firms like AVG or Kaspersky
Deta
ils
Str
uc
ture• $7.68B in cash
• All equity / no debt on McAfee books
• No dilution of Intel shares
• Rival bidders locked out or forced to overpay
• 60% premium (McAfee shares were trading at a 12 month low)
• Based on multiples of companies or recent transactions could
arguably have negotiated a lower price
• Operations: Fully owned sub under
McAfee name due to considerable
brand equity
• Separation necessary for
access to non-Intel based
customers (perception)
• Products: All McAfee offerings to
remain
• Management: agreements to remain
for multiple years
• Integration: Value of deal lies and
shared product development
sales, and marketing groups
Intel
PC Client Data Center
EmbeddedDigital Home
Ultra-Mobility
NAND Memory
Wind River Software
Digital Health
Software and Services
McAfee
In Favor of McAfee
Market Value
Control Premium
Potential Synergies
Transaction/Integration cost
Transaction Structure
Allocation of Value
Competing bids
Stock market/economy
Develop In-house
PartnershipPurchase McAfee
De
cis
ion
De
tail
s
McAfee to operate under Software Services Group with
selective integration
Deal structured to ensure McAfee acquired
Strategy
•McAfee as independent subsidiary
• Operates under McAfee brand
•No change in business model of Intel or McAfee
Org.
Structure
•No change in organization structure at McAfee
• McAfee brought under Intel’s Software and Services Group
Product
Portfolio
•No change at McAfee, but improve-ment in Intel’s chipset by providing chip level security
Sales and Marketing
•Both parties to implement cross selling
•Intel has direct access to corporate customers
Culture & Employees
•No layoffs at Intel or McAfee –complementary business
•No change in culture at either of the company
•McAfee HQ remains same
Financial Reporting
•Centralized –Align with Intel’s reporting under Software and Services group
Human Resources
•Alignment with Intel’s practices
Integration: Focus on Product
•Tablet
•Smart-phones
•Digital Home
•Auto
•Cloud
•Enterprise
•Netbooks
•Notebooks
•Desktops
Personal Computer
Server
MobileEmbedded
McAfee offerings intersect with Intel’s entire
portfolio, initial focus should be in corporate
Inte
gra
tio
n S
eq
ue
nc
e
Integration should focus on product development and sales & marketing opportunities (primarily for Intel)
Pro
du
ct
Po
rtfo
lio
Integration for corporate server/PC where value proposition has more traction
then shift to mobile in corporate and consumer. Other segments to follow.
2013
2012
2011 Corporate & Consumer PCCorporate Server and Cloud
Corporate Mobile
Timeline intended to portray integration sequence not length/effort.
Consumer Mobile
Digital Home, Auto, etc.
Recommended