Home > Economy, Business & Finance > The Intel McAfee Deal

The Intel McAfee Deal


Intel Corp (INTC) announced today the $7.68 Billion acquisition of McAfee (MFE). The all cash deal, values McAfee at $48/Share, which is a 58% premium over yesterdays closing price. The deal has the approval of both boards of directors.

In doing the deal, Intel is looking to gain a foothold with its products into the mobile marketplace and other devices other than PCs. It is also possible that the McAfee software could be somehow embedded into Intel’s Chips on certain types of devices.

For all intents and purposes, this is a large value deal by Intel’s standards. Bases on McAfee’s  estimated 2011 earnings of $2.87/share, this deal is approximately 17X earnings. Additionally, Intel is paying 3.29X revenue for McAfee.

In other words, if McAfee earns approximately $450 million in 2011, and at a annualized growth  rate of 17% to earnings, it would take approximately 9 years for Intel to have covered the purchase price  ($7.68 Billion) for McAfee.

Here is where things get a little interesting though. McAfee’s has close to 72% gross margins. Gross Income in 2009 was $1.4 billion. Of which, $1.1 billion or 79% was in SG&A.   If Intel and McAfee, (and I am sure they already have) can find mutual synergies and cost efficiency to cut operating costs, there is huge room for accelerating earnings capacity. Its interesting to note, that the deal is supposed to be marginally dilutive to earnings in the first year, so perhaps something is in the works (1 Time Charges?) for the first year already.

While the deal may seem pricey at $48 per share, and while it is close to a 11 year high for the stock price (think dot.com bubble), I think there is a lot of opportunity for Intel to open up new markets, expand existing ones, and make the acquisition fruitful.

Could Intel of done something different with the $7Billion, Sure. They could of made smaller acquisition or even paid out more in dividends.

I think Intel wants to be the growth story again. Good for them if they can pull it off!

But like they say, Its all in the assumptions the deal is predicated upon and the execution of the details that matter.

On a side note, whats with the law firms who have decided to file suit, claiming that, the deal should of been higher (basing that on 1 analyst who had a $50 price target on the stock). Hey guys, wake up, 11 year high on the stock today! If I was a shareholder (and I’m not) I would be feeling pretty good right about now!

For more info on the deal you can check out articles from Bloomberg and Reuters.

Don Sedy 2010

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